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CBI Group Wants Pay Ratio Disclosures to Focus on U.K. Workers

  • Business group also wants a binding vote regime on pay
  • Proposal seeks to restore trust in business, CBI chief says

Britain’s largest companies should only be required to disclose pay ratios for U.K.-based employees, if a hotly debated law on executive compensation takes effect, according to the country’s biggest business group.

The CBI broadly favors disclosing pay ratios and tracking long-term changes in the pay gap between top executives and average workers as a way of building trust in business, the organization said in a written response to the government’s green paper on corporate governance reform. However, regulating the pay of overseas employees wouldn’t work because rates in other countries are different.

“The CBI is recommending that any pay ratio publication should focus on the trends within a company’s U.K. workforce -- showing how the variance between executive pay and average worker pay is changing over time,” CBI president Paul Drechsler said in a statement. “This way, pay ratios may provide meaningful transparency and value to this debate.”

The U.K. government, backed by the country’s influential Investment Association, is considering rules requiring listed companies to publish data on the pay gap between executives and average workers. The proposal has been divisive, with four FTSE-100 companies -- including GlaxoSmithKline Plc and Aviva Plc -- coming out against the idea.

Fidelity International, the fund manager with around £19 billion ($24 billion) invested in U.K. equities which had previously supported the proposal, has also voiced its opposition, warning of “unintended consequences.”

Advocates of pay ratios say they will help reduce a pay inequality that has troubled Prime Minister Theresa May. A FTSE-100 CEO earned 128 times more than the average employee in 2015, up from 47 in 1998, a widening gap that May has decried as “unhealthy and irrational.”

In a hardening of attitudes towards excessive executive pay, the CBI argued for a binding vote regime if a company loses a shareholder vote.

“Our proposals seek to address some of the issues that have undermined the reputation of business,” said Drechsler. “Where CEO pay has become disconnected from performance, shareholders should have the power to give a company a yellow card.”

Firms that lose their advisory vote on pay or receive 25 percent or more of the votes against the directors’ remuneration report for two consecutive years should face a binding vote on policy at their next annual general meeting, he said.

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