U.K. Firms Must Justify Executive Pay Gaps Under Government Plan

Large companies listed in the U.K. will have to explain the pay gap between bosses and employees under government plans to be submitted to Parliament June 11.

Firms with more than 250 staff on their books will have to publish and justify the difference in pay between chief executives and workers and will have to detail how directors are acting in the interests of both employees and shareholders, the Department for Business, Energy and Industrial Strategy said. The new rules also require companies to provide their investors with information on the impact share price increases will have on long-term incentive plans.

The proposals follow U.K. lawmakers pledging in March that they would probe both executive pay and the gender pay gap at private companies. That followed a report by the High Pay Centre and the Chartered Institute of Personnel and Development in January which found it takes top executives at U.K. companies only three working days to earn the same as a typical worker would in a year.

Prime Minister Theresa May has repeatedly spoken out against excessive wages in the corporate sector, and last year introduced measures to strengthen mandatory reporting around executive compensation.

Pay policies at U.K. companies have come into sharp focus in recent months. Lloyds Banking Group Plc saw just over a fifth of shareholders vote against its executive pay packets at its annual general meeting in May. Oil giant Royal Dutch Shell Plc, industrial takeover specialist Melrose Industries Plc and pharmaceutical firm AstraZeneca Plc have also faced opposition to pay plans for their bosses.

“Most of the U.K.’s largest companies get their business practices right but we understand the anger of workers and shareholders when bosses’ pay is out of step with company performance,” U.K. Business Secretary Greg Clark said in a statement. He added the new rules are designed to boost transparency and accountability “at the highest levels, while helping build a fairer economy that works for everyone.”

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To contact the reporter on this story: Sam Unsted in London at sunsted@bloomberg.net

To contact the editor responsible for this story: Beth Mellor at bmellor@bloomberg.net