Back in January 2019, the Government announced that new regulations would be introduced that would require certain companies to disclose directors executive pay ratios. The legislation introduced has the rather snappy title of The Companies (Miscellaneous Reporting) Regulation 2018.
Executive Pay Gap Reporting
The purpose of the new legislation is to report on the relationship between the pay of the top brass of a company and the pay of employees.
However there is a lot of misunderstanding over who has to report, whether a monetary report is required for all companies and what narrative reports are required.
Many companies are seeing the reference to 250 employees and thinking that there is further red tape and costs involved in producing another report to demonstrate the executive pay gap on top of the Gender Pay Gap reports that they are currently producing. The 250 employee figure is important but there is not necessarily a monetary figure to report.
So, let’s set the record straight! What are the reporting requirements and who is affected?
Executive Pay Gap Reporting Requirements
Companies quoted on the UK Official Stock Market List (but not AIM) are required to publish within the directors’ remuneration report the ratio of their CEO’s remuneration to the median percentile of the full time equivalent of their UK employees.
Companies with more than 250 UK employees are required to include a statement (narrative statement) within their directors’ report, advising how they have engaged with employees in respect of the principal decisions and those decisions impact on the employees.
Very large private and public unlisted companies are required to include a statement within the director’s report stating which corporate governance report has been used.
Large companies are required to include within their director’s report indications of how they have had regard for the needs of suppliers and customers within the financial year.
This is pretty meaty stuff, however the vast majority of the reports are narrative reports within the various reports on company accounts. Such reports will be complied in discussion with the external accountants when the company accounts are discussed and finalised.
Payroll will be involved in compiling monetary reports/ratios but only for those quoted companies.
Advice to Company Directors
The advice to all company directors who employ more than 250 UK employees, is engage at an early state of the accounts preparation cycle with the accountants to ensure that the necessary narrative reports are duly considered and included in the accounts.
The reports apply for all company financial years starting on or after 1 January 2019.