What information are companies required to publish under the executive pay ratio reporting duty?
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 employees' pay and benefits. Companies must include a table in their directors' remuneration report setting out the ratio of their CEO's total remuneration to the:
- 25th percentile full-time equivalent (FTE) remuneration of the company's UK employees;
- 50th percentile (median) FTE remuneration of the company's UK employees; and
- 75th percentile FTE remuneration of the company's UK employees.
The table should be formatted as follows:
|Method||25th percentile pay ratio||Median pay ratio||75th percentile pay ratio|
|[1 January to 31 December 2019]||[Option A, option B or option C]||[Ratio of CEO's total remuneration to pay and benefits figure of employee on 25th percentile]||[Ratio of CEO's total remuneration to pay and benefits figure of employee on 50th percentile]||[Ratio of CEO's total remuneration to pay and benefits figure of employee on 75th percentile]|
Alongside this table, the company's directors' remuneration report must also set out:
- an explanation for the chosen method of calculation (ie why the company chose option A, option B or option C as its preferred method);
- the reason for any change to the method of calculation, if the company was required to report its executive pay ratio in the preceding financial year; and
- the day by reference to which the company determined its three percentiles.
There are a number of additional reporting requirements where the company chooses option B or option C, which include setting out a short explanation of:
- why it believes the "best equivalent" employees identified using gender pay gap information under option B or other information under option C are reasonably representative of the three percentiles of company remuneration in the relevant financial year;
- any estimates or adjustments used to determine the pay and benefits in the relevant financial year of the employees identified using gender pay gap information under option B;
- any component of the employees' pay and benefits that is omitted from the calculation, and the reason for the omission; and
- any method of calculation that is different from the method set out in sch.8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) for calculating the components of the CEO's total remuneration (see For the purposes of executive pay ratio reporting, how do companies calculate CEO pay?).
In addition, the company must also publish supporting information that explains:
- any reduction or increase in the pay ratio compared to pay ratios of previous financial years;
- whether or not any reduction or increase in the pay ratio is because of:
- changes to the CEO's remuneration or the pay and benefits of the company's UK employees taken as a whole;
- changes to the company's employment models; or
- the use of a different option to make the calculations;
- any trend in the median pay ratio over the financial years covered by the pay ratios table; and
- whether or not the company believes that the median pay ratio for the relevant financial year is consistent with the pay, reward and progression policies for the company's UK employees taken as a whole and, if it does, why.
If the company was required to report its executive pay ratio in preceding financial years, the directors' remuneration report should also set out the executive pay ratio for up to nine financial years immediately preceding the relevant financial year. This means that a picture builds up over time of the company's executive pay ratio history.