An influential investor group has told companies they must publish credible action plans that align executive pension pay with their workforce by 2022, or risk further shareholder revolts.
The move could result in companies slashing bumper pension payouts for several executives, who pocket hundreds of thousands of pounds in cash retirement benefits every year.
The Investment Association – which represents City firms with £7.7tn in assets under management – said it will slap companies’ annual reports with a “red top” or highest possible warning label if they fail to share concrete action plans to align executive pension pay with the majority of staff and continue to offer top bosses retirement benefits worth over 25% of salary.
UK workers receive a pension worth, on average, about 10% of their pay, but that figure can be as low as 8% based on the latest auto-enrolment rules, and the bulk of it is paid by the workers themselves.
Firms that offer a concrete plan but still pay pensions worth over 25% of salary to executives will be issued with an “amber top” warning on their annual reports by the IA’s Institutional Voting Information Service (Ivis).
Those reports will then be shared with the IA’s membership – comprised of more than 250 investment management firms – before each company’s annual general meeting to inform their voting plans.
Andrew Ninian, the IA’s director of stewardship and corporate governance, said: “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.”
UK companies including lender Standard Chartered and banknote printer De La Rue were among the companies hit with investor rebellions over their pension agreements this year. Nearly 40% of Standard Chartered shareholders refused to back the bank’s remuneration policy in May, which included a £474,000 pension cash allowance for the chief executive, Bill Winters.
Winters faced further controversy after saying that the shareholder protest – the largest revolt at the bank for five years – was “immature and unhelpful”.
The IA executive has already urged companies to bring executive pension pay below 25% of their salary, but is now ramping up the pressure by setting the two-year deadline for companies to comply with the UK corporate governance code. The new code stipulates that bosses’ pension pay should align with the majority of the workforce.
It comes as companies phase out expensive final salary schemes and defined benefit pension plans, which they claim they cannot afford. But while companies switch to cheaper defined benefits schemes that require workers to shoulder most of the financial burden, remuneration committees continue to offer top bosses enormous annual payouts.
The IA said that about 25 FTSE 100 firms have pledged to pay all new directors pensions that are in line with the majority of the workforce, but it said further action was needed.
Ninian said: “Providing directors with 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.
“We are particularly pleased that some companies have used this shareholder scrutiny as an opportunity to assess whether their broader workforce contribution rates are appropriate.
“Shareholders want to see that progress continue.”
