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Will the new pay ratio reporting requirements lead to greater transparency?

01 June 2019

Will the new pay ratio reporting requirements lead to greater transparency?

This month we asked the Governance and Compliance and the Core community to reflect upon new reporting requirements on pay ratios.

Overall the majority of our respondents (43%) believe that the new requirements will lead to greater transparency. One stated that: “Most FTSE companies are fairly transparent on pay already, particularly in Financial Services. It will, of course, lay bare the differences in salary levels through an organisation but whether it achieves the desired effect of reigning in pay, I’m not as convinced”.

Others, however, raised concerns about the overall likelihood of reported data giving a true reflection of the situation, with one stating; “I think a great deal depends on how businesses classify the pay grades in their workforce. It will certainly be more transparent than it is today, but transparency doesn’t automatically lead to understandability or comparability.”

Another claimed “I’m unsure the ‘spirit’ will be followed and believe companies will present the information using every possible nuance to make the end result more palatable” and another “It may take longer to deliver the changes to related policies and practices that the regulations seek across markets though, as these will require more fundamental processes and governance than data collation alone”.

When asked about the impact that the new reporting regulations may place upon resources, our respondents were fairly equally split on the question of whether it would place an undue burden, with 45% believing it won’t and 42% believing it will.

Will the new pay ratio reporting requirements place undue burden on resources?

One responder stated that “I believe that few firms will be well placed to absorb this additional requirement effectively without incurring a disproportionate administrative burden when compared with the proposed benefits the reporting will bring, at least in the short term”.

Another claimed “Whilst it is certainly an additional burden, who can say if it is an undue burden given the overall aim of the legislation” and a third answered “probably at the outset but once a template is in place then no additional burden”.

When asked about whether they’d experienced any obstacles that companies had experienced when complying with the regulations, most stated that they’d experienced little, with one stating: “No, just too much work and limited resources to source the information and comply.”

Another said “Not at this stage, although there is a general reluctance to move outside of established practices or emerging trends so progress is more likely to be gradual as a result” and another “no, other than having to explain to staff exactly what the pay ratio represents. We have also had to take care to ensure we will report correctly for our various group and subsidiary companies (but then that’s standard Co Sec work really)”.

TA few potential issues were raised, however, with one responder stating that they’d had “difficulty in obtaining multi-jurisdictional pay data with sufficient granularity to calculate percentages”. Another that there had been issues with “understanding the legislation, ensuring consensus as to interpretation and implementation” and a third “some historical data/system issues from outdated HR systems”.

One responder was keen to ensure that the spirit of the regulations were upheld, stating that they “need to keep focused on the greater good and not let it become just another disclosure”. 

Conducted in association with The Core Partnership

If you are a company secretary or governance professional at a leading UK business, and you would like to take part in or comment on future surveys, email team@core-partnership.co.uk


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