Executive pay continues to make the headlines for all the wrong reasons. Companies looking to avoid negative publicity over pay face even greater challenges when it comes to reporting their gender pay gap figures.
The earnings of CEO's at the UK's top companies continue to grow. The High Pay Centre's annual survey recently revealed that the average pay package for FTSE100 CEO's was up 10% to almost £5.5 million last year. The average pay ratio between FTSE100 CEO's and the average wage of employees was 147:1.
Unsurprisingly these figures have attracted criticism. Even the Prime Minister was moved to comment that, in her opinion, 'there is an irrational, unhealthy and growing gap between what these companies pay their workers and what they pay their bosses'.
Although these figures are very large, they represent the entire pay package for CEOs and a significant amount of the figure is likely to come from incentive or bonus schemes rather than simply salary. Many such executive schemes are long-term schemes which assess performance over several years and reward individuals with shares rather than directly with cash (Long-term incentive plans or LTIPs).
As well as highlighting the growing gulf between executives and employees, these figures also demonstrate why the lack of women on boards has become a key priority.
In our previous article we considered the traditionally poor representation of women on company boards and what the government has done in recent years to try and improve this. Although the threat of quotas being imposed by the EU has now receded, the UK Government, particularly under Theresa May is unlikely to let the matter rest. Plans to introduce mandatory gender pay reporting can be seen as another attempt to push companies towards gender parity.
Gender pay reporting
The impact of executive salaries coupled with the lack of women on boards is likely to be felt once the gender pay reporting obligations come into force.
Private and voluntary organisations with 250 or more employees will be required to publish their first gender pay report by 29 April 2018 at the latest. Such reports will have to disclose the difference between male average pay and female average pay as at 30 April 2017 and the average bonus pay gap calculated over the 12 months preceding that date.
As 10% of FTSE100 companies have no female executive directors and the rest have fewer than 50%, the size of remuneration packages at the top of such organisations is going to seriously skew their gender pay gap figures.
This will affect not just the overall pay gap figure which organisations have to publish but also the separate bonus figures.
We believe that organisations will be required to publish the difference in mean bonus pay between male and female employees and the proportion of both male and female employees who received a bonus in the preceding year.
While we are still awaiting the final version of the gender pay reporting regulations, which may be subject to change, it is likely that LTIPs will need to be taken into account and this could see some very big numbers being disclosed.
Mandatory gender pay reporting may seem a long way off but, FTSE100 companies need to start planning now for scrutiny of their gender pay gap figures, which seem likely to be significant. While the headline figure may very well be misleading, companies will be encouraged to include a narrative explaining their data and, it will be important to set out any mitigating factors, such as the historical nature of some LTIPs which are only now maturing. Putting in place strategies now, to encourage more women to step into senior roles, will not only help to improve figures for the future but also demonstrate that companies are taking the issue seriously.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.