Shareholders clamp down on executive pensions

Institutional shareholders will be clamping down further on executive pension perks “in a move to promote fairness and good employee relations” — according to the Investment Association’s (IA) updated annual pay guidelines for companies.

The IA represents the UK investment management industry and its 250 member firms manage £8.5 trillion of assets.

“Previously, it was common for pensions contributions for executives to be considerably higher than for the wider workforce,” said the IA.

“Although significant progress has been made on bringing executive pension contributions in line with the majority of the workforce, investors, having called for this in previous years, will now be taking a stronger stance against those companies which have yet to take sufficient action.”

In a letter sent to the chairs of Remuneration Committees of FTSE 350 companies, the IA informed companies that its Institutional Voting Information Service (IVIS) will be giving a red-top, its highest level of warning, to those that fail to draw up a credible action plan to align incumbent directors’ pension contributions by the end of 2022, if they are 15% of salary or more.

This lowers the threshold from last year, which was set at 25% of salary.

New executive directors are expected to automatically join with a pension contribution aligned to the workforce rate.

Andrew Ninian, Director of Stewardship and Corporate Governance at the Investment Association, said: “With coronavirus continuing to hit household finances across the UK, investors expect companies to treat their executive directors and workforce consistently when it comes to pay.

“Investors will be paying close attention to ensure pay remains linked to the experiences of shareholders, employees and other stakeholders.

“Aligning executive directors’ pension contributions with the rest of the workforce is fundamentally an issue of fairness.

“Investors have already played an important role in bringing about change and today’s announcement will further increase the pressure on those companies that have yet to take action.”