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The UK government will propose legislation next month that will require companies to publish the ratio between the compensation of their CEO and that of their median employee, the Financial Times reported on Sunday. The rule is expected to come as part of a package of corporate governance reforms meant to address inequality by reining in executive compensation practices widely seen as excessive, which will also require boards of directors to demonstrate that they have acted in the interests of their companies’ employees, customers, and other stakeholders, rather than just the interests of investors. Large companies will also be required to certify compliance with a corporate governance code.
The writing has been on the wall for UK companies for some time now. The government first announced plans to institute a pay ratio reporting requirement last August, as well as to “name and shame” companies whose investors object to their executive pay packages. Recently, several large British companies have faced drubbings from investors and the media over the millions of pounds in bonuses they paid out to their top executives this year
At the beginning of this year, a report from the CIPD and the High Pay Centre revealed that the average FTSE 100 CEO earned £3.45m last year, or 120 times the £28,758 earned by the average British worker. At an average hourly rate of £898 per hour, the top CEOs earned more than the average employee by the third working day of the year, which campaigners quickly dubbed “Fat Cat Thursday.”
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New regulations announced last year in the UK to require organizations with 250 employees or more to publish any gender discrepancies in their payrolls became effective on Thursday. While employers are not required to publish these figures for the first time until a year from now, the regulation requires them to base their on a “snapshot” of pay data based on the year leading up to April 5, as the law firm Simmons & Simmons explains in a comprehensive overview of the regulations. Of course, answering the question of which employers and employees are covered by the rule, and what data employers are obligated to collect, is not entirely straightforward:
Those employed under a contract personally to do work would be included where the employer has the data needed to carry out the calculations, which may be the case for example where a project initiation document exists and/or a schedule of fees. Where the employer does not hold the data, they should consider whether it is reasonably practicable to obtain it, for example by asking the person so employed. New contracts should seek, where possible, to ensure that those employed under a contract personally to do work are required to provide the information needed for compliance.
Agency workers will form part of the headcount of the agency that provides them, and not the employer they are on assignment to. Similarly any individual who is employed by their own service company, which, in turn, contracts to provide a service to an employer would be caught by the headcount of employees for the service company if it employs 250 or more employees, not by the end user. Each part time worker will count as one employee for gender pay reporting purposes. If an employer uses job-share arrangements then every employee within a job-share counts as one employee each.
Alison Woods and Paul Graham, attorneys at CMS Cameron McKenna, answer some of employers’ most likely questions about the rules at SHRM: