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In Focus: Pay-ratio Disclosure in the US and UK

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  • In Focus

    Pay-ratio Disclosure in the US and UK

In Focus

Pay-ratio disclosure holds great importance to investors and shareholders, as it can be used as a factor by which to measure company performance as well as give accurate indication towards the responsible employment practices of the corporations they invest in. Transparency in pay-ratio disclosure can also help hold top executives accountable to workers and shareholders, in terms of their performance in their duties. It is currently an issue of contention in both the US and the UK, with governmental agencies such as the US Securities and Exchange Commission (SEC) studying methods of implementation. For more information, please review the Pay-ratio Disclosure campaign pageon the CWC website.

 

UK Hutton Review supports pay-ratio disclosure, “pay for performance” concept

A UK government commissioned report on pay in the public sector spearheaded by Will Hutton has recommended that the largest corporations in Britain should disclose the pay-ratio between the CEOs and the average employee, as early as April this year. As reported by Bloomberg, the report was commissioned in light of the government’s efforts to better regulate top public-sector executives’ pay. Hutton stated that disclosing the pay of the top CEO in reference to the pay of the median workforce “should be the norm across the whole economy”, due to social inequalities and a lack of a performance link to pay.

Furthermore, according to BBC, Hutton rejected the idea of placing a  “pay cap” on CEOs to the tune of a maximum 20-to-1 pay ratio, claiming that, although well-intentioned, it held too much potential to become a “target to which [executives] aspire”. Instead, he proposed a “pay for performance” approach that requires top executives to truly “earn” their wages by achieving certain standards of good performance in their duties as senior directors of the company.

 

US Republicans to introduce legislation in attempt to curb the Dodd-Frank Act, pay-ratio disclosure

US House Republicans have announced their intention to draft bills intended to repeal or alter some of the “damaging” provisions in the Dodd-Frank Act that have been opposed by corporate lobbyists. The Huffington Post reports that, following the passage of the Dodd-Frank Act, most Republicans are now focused on targeting specific provisions within the Act that serve as protections for the financial system.

One of the bills that House Republicans are putting forward seeks to dissolve the Dodd-Frank provision that requires publicly traded companies to disclose the annual wage ratio between the chief executive and the average employee of that corporation in their SEC filings. The State Column reports that proponents of what is being called The Burdensome Data Collection Relief Act claim that compliance with the pay-ratio disclosure provision imposes a logistically and financially unwieldy burden on the companies affected, taking up resources that would otherwise be directed into investment or job creation.

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