Public companies in the UK will be required to justify pay differences between the pay of chief executives and their staff, according to a government announcement.
Directors also face demands to set out how they work in the interests of employees and shareholders.
Business secretary Greg Clark said: “One of Britain’s biggest assets in competing in the global economy is our deserved reputation for being a dependable and confident place in which to do business.
“Most of the UK’s largest companies get their business practices right but we understand the anger of workers and shareholders when bosses’ pay is out of step with company performance.
“Requiring large companies to publish their pay gaps will build on that reputation by improving transparency and boosting accountability at the highest levels, while helping build a fairer economy that works for everyone.”
Legislation will be set before Parliament today demanding the pay justifications as well as disclosure of the gap between chief executive pay and average UK worker pay.
The laws will demand that private companies “report on their responsible business arrangements” while public companies will be required to disclose the effect a rise in share price will have on CEO pay.
In a statement published alongside Greg Clark’s, Chris Cummings, chief executive of the Investment Association (IA), said: “Investors are demanding greater director accountability and transparency on executive remuneration.
“Pay ratios will shine a spotlight on what executives are being paid compared with their workforce, and investors will expect boards to articulate why the ratio is right for the company and how directors are fulfilling their duties.
“Through the IA’s Public Register we are seeing investors hold business to account. The IA wants to ensure UK listed companies are run in a way that delivers long-term returns for savers and pensioners.”