The regulations cover three different areas:

• Executive pay
• Section 172
• Corporate governance arrangements of large privately-held businesses

Executive pay

For the first time, Quoted and UK registered companies with more than 250 UK employees will need to annually publish and justify the pay difference between chief executives and their staff – known as ‘pay ratios’. Such companies will also need to illustrate the effect of future share price increases on executive pay outcomes to inform shareholders when voting on long-term incentive plans.

Reporting on Section 172

Large companies (within the meaning under the Companies Act 2006) will need to include:

1. A separately identifiable statement in the Strategic Report describing how the directors have complied with their duty to promote the success of the company having regard to the matters section 172(1)(a) to (f) of the Companies Act 2006.
2. A statement in the Directors’ Report summarising how the directors have had regard to the need to foster the company’s business relationships with suppliers, customers and others, and the effect of that regard, including on the principal decisions taken by the company during the financial year.

All UK registered companies with more than 250 employees will have to include:

• A statement in the Directors’ Report summarising how their directors have engaged with employees, how they have had regard to employee interests, and the effect of that regard, including on the principal decisions taken by the company during the financial year. This expands on the information about employee engagement matters that companies already have to include in their directors’ report.

Corporate Governance arrangements in large private and unlisted public companies

UK registered companies with either 2,000 or more global employees or a turnover over £200 million globally and a balance sheet over £2 billion globally will be required to include a statement as part of their Directors’ Report stating which corporate governance code, if any, has been applied and how. If the company has departed from any aspect of the code it must set out the respects in which it did so, and the reasons. If the company has not applied any corporate governance code, the statement must explain why that is the case and what arrangements for corporate governance were applied.

Subject to Parliamentary approval, the new requirements will apply to company reporting on financial years starting on or after 1 January 2019. This timetable will align with the Financial Reporting Council’s plans for bringing a revised UK Corporate Governance Code into effect.

A press release is available on the BEIS website here.  The draft regulations are available here.  Frequently asked questions on the draft regulations are available on the BEIS website here.

Our related Governance in brief publication is available here.  Our related Need to know publication is available here.