Improve pensions equality or face shareholder rebellion, say investors

Organisations with directors who are paid more than 25% of their salary as a pension contribution could risk shareholder dissent under new guidelines for investors.

The Investment Association, which represents more than 250 UK investment management firms, said companies must develop “credible” plans to pay all executives pension contributions at the same level as the majority of their workforce by the end of 2022, or shareholders might vote against the organisations’ interests.

The body said executive remuneration, of which pension contributions form part of, is a growing reputational issue for investors and has an effect on how they see an organisation’s long-term value.

One-third of FTSE 100 firms made significant changes to their executive directors’ pension contributions in 2019 as a result of shareholder pressure, while a quarter pledged to pay new directors contributions in line with other employees.

Andrew Ninian, the association’s director of stewardship and corporate governance, said: “Providing directors the same pension contributions as the rest of the workforce is fundamentally an issue of fairness, and we welcome the strong progress a number of companies have made towards bringing executive pension contributions in line with their workforce.

“Our new guidelines require companies to show they are serious about that ambition and set out a credible action plan to deliver it. Companies with high executive pension payments who don’t provide that plan risk facing further shareholder rebellions in their 2020 AGMs.”

The Investment Association operates the Institutional Voting Information Service, which highlights issues or concerns for investors prior to voting. Any issues are given a colour code, ranging from green to red, to reflect the issue’s severity.

It will award “amber” scores to companies with an existing director who has a pension contribution over 25% of salary, but has a plan to reduce that pension to the level of the majority of the workforce by the end of 2022.

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“Red” scores will be given to those with directors who have a pension contribution above 25% of salary and no plan to reduce that contribution, and firms that seek approval for a new remuneration policy which does not explicitly state it will bring pensions into line with the rest of the workforce.

The Investment Association has also asked companies to publish the pension contributions they pay to the majority of their workforce, and review those contributions to ensure they are providing appropriate pension provision.