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August 30, 2017

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Listed UK firms must justify gap in wages of CEOs, average staff

LISTED British companies will have to justify the gap in salaries between their average worker and chief executive under proposed new rules that fall short of Prime Minister Theresa May’s initial plan to tackle soaring executive pay.

May came into power after the 2016 Brexit vote vowing to tackle what she called the “unacceptable face” of capitalism, including pay gaps and mismanaged takeovers, that had driven a wedge between British bosses and their workers.

But her initial proposals to put workers on boards and give shareholders binding votes on executive pay have been watered down as her position has weakened. Campaigners and investors were divided over whether the greater transparency would be enough to force companies to curb pay excesses.

“I am afraid that the government has bottled it in the face of business lobbying,” Frances O’Grady, the head of the Trades Union Congress, told BBC Radio.

According to campaign group the Equality Trust, the chief executives of companies in the FTSE 100 share index take home on average 5.3 million pounds (US$6.9 million), or 386 times more than a worker on the minimum wage.

May initially attacked the divide, but toned down her criticism after losing her majority in an election that undermined her position in a party that has for decades encouraged a low-key approach to corporate regulation.

May has also worked to ease strained relations with business leaders to secure their support for her plan to leave the European Union.

“As we leave the EU and chart a new course for our country, the economy we build must be one which truly works for everyone, not just a privileged few,” May said in the government paper.

Under the new proposals which will apply to all listed companies and come into effect by June 2018, remuneration committees will be tasked with taking into consideration the pay of all their workers when they set executive targets.

Companies will have to publish the ratio between the CEO and their average worker, and those companies suffering a more than 20 percent shareholder pay rebellion will be named in a public register designed to shame firms into changing their ways.

In order to bring the voice of the average employee to the boardroom, companies will be given a choice between assigning a non-executive director to represent staff, create an employee advisory council or nominate a director from the workforce.

Large private companies will also have to adopt stronger corporate governance arrangements and the Financial Reporting Council, which oversees corporate governance, will work with business trade groups to develop a set of principles.

Business lobby groups and some institutional investors welcomed the new proposals as a pragmatic way to address the problem of soaring pay.


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