For the purposes of executive pay ratio reporting, how do companies calculate CEO pay?
The Companies (Miscellaneous Reporting) Regulations 2018 (SI 2018/860) introduce a requirement for quoted companies with more than 250 employees to publish the ratio between their CEO's total remuneration and the pay and benefits of employees on the 25th, 50th (median) and 75th percentile of pay and benefits of the company's UK employees for the relevant financial year.
To calculate the ratio, employers must establish the CEO's total remuneration for the relevant financial year by adding all the components in the "single total figure table". The single total figure table is set out in para.5 of sch.8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) and applies to the pre-existing requirement to report directors' remuneration generally.
The components in the table, which employers must add together to establish the CEO's total remuneration for pay ratio reporting purposes, are:
- all salary and fees;
- all taxable benefits (gross value);
- performance-related pay or other assets, depending on when they were awarded and how final vesting is determined;
- pension-related benefits; and
- any other remuneration items not included above.
These components largely reflect those that employers must use to calculate employees' pay and benefits, for the purpose of calculating the ratio.
Where there was more than one CEO during a financial year, the employer must use the total remuneration in the table relating only to periods when those individuals were the CEO. Therefore, where an individual has been a director for the whole financial year, but the CEO for only part of the financial year, for the purposes of executive pay ratio reporting the employer would, for each CEO, include only the total pay representing the period when that individual was the CEO. It would not use the total pay for the whole year for an individual director (although this would still have to be included in the table and calculation under the pre-existing requirement to report directors' remuneration generally).