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Legislation to Force UK Companies to Reveal Wage Gap

Published By Team AdaptiveWork

UK companies with more than 250 employees will soon be required to publicly share the wage gap between the pay of their chief executive and that of their average employee. This can be seen as another part of the UK government’s consistent drive for greater corporate accountability in the wake of the mistakes of the “light touch regulation” which contributed to the economic disasters of the past decade.

Not only has it been a public demand from concerned citizens who ended up bailing out many financial institutions who had behaved recklessly, it has also recently become a point of rebellion for those organizations’ own shareholders, who are becoming increasingly concerned about the heavily incentivized “bonus culture” at board level, where short term share price boosts are prioritized over long term stability.

More Transparency

The new legislation will also obligate executives to clearly explain what their bonus plans will equal at different share prices, so that they know exactly what they are voting for during company AGMs. This lack of transparency and perception of underhandedness has led to significant shareholder revolts and awkward explanations at huge multinationals such as Lloyds, Shell, AstraZeneca, William Hill, GVC, and Inmarsat.

The chief executive of the Investment Association, Chris Cummings, said that: “Investors will expect boards to articulate why the ratio is right for the company and how directors are fulfilling their duties.”

In addition to these concerns, the new laws, which will not come into effect until 2020, have been criticized by the opposition Labour party and trade unions for not going far enough in addressing the huge inequalities of employment in the UK.

The Labour party’s business and industrial secretary, Rebecca Long Bailey, felt that it was a missed opportunity from the ruling Conservative party to put meaningful corporate oversight in place. She stated that it “won’t end staggering pay disparity or help hard-up workers at the bottom of the chain.”

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Lingering Concerns About Stability

While employment in the UK has been going from strength to strength, despite the forewarnings of financial collapse following the Brexit vote in 2016, there are still underlying concerns about the stability of the employment market, especially for those involved in the “gig economy” or other unsecure labor contracts. It is here where the wage gap between highly skilled professionals and those surviving on the living wage is most pronounced and threatens to divide the country into a two-tier economy.

The many years of directors and executives acting with impunity with regards to the huge wage gap in their favor and showing little remorse when things go wrong, has brought them very firmly into the public eye in recent years. For Frances O’Grady, the general secretary of the Trade Union Congress, a federation of the majority of the UK’s trade unions, the “fat-cat bosses are masters of self-justification and shrugging off public outcry. New rules are needed to make sure they change.

“We need guaranteed places for worker representatives on boardroom pay committees. That would bring a bit of common sense and fairness to decision-making when boardroom pay packets are approved.”

Overall, along with other significant changes in terms of publishing gender wage disparity, the British government can be seen to be, however slowly, making an effort to improve the equality of employment in the UK. Time will tell how effective these current measures will be.

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Written by Team AdaptiveWork