With Gender Pay Gap reporting now firmly in the collective conscience of the nation, The Companies (Miscellaneous Reporting) Regulations 2018, signed into law on 17 July 2018, confirms that there will be a new kid on the block, in the form of CEO Pay Gap reporting – as previously reported on our sister blog Talking Business.
This blog aims to provide the key ‘need to know’ information on this new reporting requirement.
What is it and what needs to be included?
The CEO Pay Gap (also known as the Executive Pay Ratio) will measure the difference in pay between a company’s Chief Executive Officer and its staff. The requirements are to provide figures showing, by ratio, the difference in pay of the CEO and a company’s 25th percentile, 50th percentile and 75th percentile employee. Simply put this means that whilst the report will show the difference in pay between the “average” employee and the CEO, it will also show the difference between the CEO and a lower and a higher paid employee.
The Regulations helpfully set out the three potential methods a company can use to calculate the 25th, 50th and 75th employee, so that companies are all on the same page when it comes to calculations.
As well as the precise figures, companies will need to include information about why there has been any change from the preceding years. Whilst this will clearly not be applicable for the first report, there seems to be flexibility to allow companies to include additional information to add colour to the figures in the report. This may be an important tool for companies who expect their reports to be widely read.
Who needs to publish their CEO Pay Gap?
The CEO Pay Gap will need to be reported by every quoted company with 250+ employees. This is a distinct difference to the Gender Pay Gap.
According to the Government’s FAQ document, companies on the Alternative Investment Market will not be required to publish their CEO Pay Gap.
By singling out quoted companies, you can expect to see some of the biggest titans in industry publishing this potentially eye-opening information.
Where is the information published?
The required information will need to be included in a company’s annual Directors Remuneration Report (DRR). Again, this is a distinct difference to the Gender Pay Gap, which was published on a Government portal.
This is likely to draw more attention to the company’s DRR and we can certainly expect to see many of the company’s own employees having a good read of it!
Helpfully the Regulations prescribe the layout of the table to be included in a DRR.
When do the reports need to be published?
The Regulations have been signed into law, with certain provisions coming into force this month. However, do not panic, the CEO Pay Gap reporting requirement kicks in on 1 January 2019. This then gets pushed even further due to the ‘look-back’ nature of the reports. As there is a need to report on the 2019 pay gap, there is no need to include the figures until the 2020 DRR.
Whilst this seems a long way off now, company executives and HR departments should take heed from the publicity the Gender Pay Gap reports gathered earlier this year and start seriously considering these reports now. Whilst the value of Pay Gap reporting may not be seen for a number of years, the potential adverse publicity if they are not handled correctly could be instant.
This blog post was written by trainee solicitor Adam Noble. For further information, please contact:
Christopher Davies, professional support lawyer, Employment
T: 0161 836 7936