UK’s Legal & General Plans to Disclose CEO-to-Employee Pay Ratio: Source

January 18, 2017

Insurer Legal & General Group Plc plans to disclose how much more its chief executive earns than rank-and-file employees, becoming one of the first big U.K. companies to respond to growing concern about wage inequality with greater openness about pay.

Legal & General, which is in the FTSE 100 index, intends to publish the ratio in March when it updates investors on CEO Nigel Wilson’s 2016 compensation in its annual report, according to a person familiar with the situation who asked not to be identified because the information is private.

L&G’s move follows calls by Prime Minister Theresa May for a crackdown on excessive executive pay, including proposals to give shareholders more say over compensation. Business and political leaders gathering in the Swiss ski resort of Davos this week are concerned that income inequality is fueling the populism behind the U.K.’s vote to leave the European Union and the election of Donald Trump as the next U.S. president.

The U.K. government is weighing requiring companies to compare the highest-paid employee’s remuneration with the average or median pay of a company’s workers, following the adoption of a similar rule in the U.S. that went into effect this month. While companies have been obliged to disclose top executives’ pay, they’ve not had to say how this compares with ordinary workers’ compensation.

‘Weight Gain’

“Pay ratios aren’t a magic bullet but they would change the conversation in a constructive way,” said Stefan Stern, director of the High Pay Centre, a U.K. research group. “It’s like weight gain. If you never weigh yourself you just get heavier and heavier.”

Some companies have opposed the publication of pay ratios, saying they could be misleading because of variations in employee skills and incomes in different industries — so that even some companies with high CEO pay might look better than those that pay their top executives more modestly. Wilson received 5.5 million pounds ($6.6 million) in 2015.

“There would, for example, be a much narrower ratio at financial services companies, where average salaries are generally high, compared to companies in the retail sector where average salaries are much lower, even though CEO pay at both kinds of company may be equally high,” a government paper outlining May’s proposals in November said.

Some smaller companies, not in the FTSE 100, have already published pay ratios, including Aberdeen Asset Management, a fund manager in the FTSE 250. It said CEO Martin Gilbert earned 20.6 times as much as the average employee in 2016, down from 32.1 times in 2015.

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