UK to Require Pay Ratio Disclosure as Part of Sweeping Governance Legislation

Executive Pay Plan Design, The UK and European Union

UK legislators are preparing to make good on long-promised sweeping revisions of the corporate governance code with legislation due to be introduced next month that will feature a pay ratio disclosure alongside a number of other corporate governance changes.  The legislation will follow through on several policy pledges by UK Prime Minister Theresa May who, having ridden the worldwide populist wave into power on the heels of Brexit, has been quick to criticize "irresponsible behavior in big business."  The most eye-catching of the new requirements expected to be included in the legislation is a pay ratio disclosure.  However, unlike the U.S. requirement, companies in the United Kingdom are expected to be required to publish the average UK worker's compensation as it relates to the CEO – not the global median employee.  Requests for additional pay ratio elements and requirements, such as a required sector comparison to help interpret pay ratio numbers, were rejected by the government, according to the Financial Times.  Among the other facets expected to be introduced in the legislation are a requirement that public and private companies provide proof that directors have considered the interests of all stakeholders, not just shareholders, in making business decisions.  Earlier rumors regarding the content of the legislation also indicated that companies will be required to pursue one of several paths to employee representation on boards: 1) having a non-executive director represent employees, 2) having a workforce advisory council which would have board member access, or 3) providing employees a board seat.  In addition to the legislation, the Financial Times also predicted that a new version of the UK's corporate governance code is expected to be published in July.