Top UK firms urged to publicly compare CEOs salaries with that of median employees

Britain's top firms have been urged by funds managers to publicly disclose how much their chief executives receive in a year and compare them with the salary of an average employee.

In an open letter addressed to the 350 companies that form the FTSE 350 Index, the Investment Association, which represents £5.7tn in funds, has called for companies to adopt a more transparent approach to their CEOs salaries.

The trade body said companies should disclose the pay ratio between their top executive's salary and the median employee salary. The Investment Association said it hopes the move could provide investors with more context to understand the factors motivating executives' salaries and bonuses, leading to "clear justification" over CEOs pay and more flexible remuneration.

"Issues surrounding executive pay are a growing concern for investors, politicians and society as a whole," said Andrew Ninian, the IA's director of corporate governance and engagement.

"It is vital that companies have the opportunity to choose the right structure for their business and this must be done in close partnership with their shareholders."

Investors at a number of FTSE 100-listed firms have all revolted against boardroom salaries. In April, shareholders at oil giant BP protested against a 20% pay rise, worth £14m, for chief executive Bob Dudley.

Earlier this year, WPP chief executive Sir Martin Sorrell was forced to defend his pay package, worth up to £70m, saying the advertising giant had prospered under his guidance. The FTSE 100 giant said it would draw up a new pay plan for its chief executive, which would please the IA, given the association has long campaigned for firms to consider alternatives to long-term incentive plans

"The increasing complexity of remuneration structures has been the driving force behind these issues," Ninian added.

"It is vital that companies have the opportunity to choose the right structure for their business and this must be done in close partnership with their shareholders."

In September, MPs launched a probe into corporate governance and executive pay, amid growing discontent at the contrast between soaring executive salaries and scandals at Sports Direct and BHS.

Prime Minister Theresa May has made corporate governance one of the priorities on her agenda and Ninian said the IA was relishing cooperation with Whitehall.

"We look forward to working with the government as it puts together its own corporate governance agenda," he added.