Friday 27 September 2019 12:01 am

Align directors’ pensions with workforce or risk shareholder dissent, companies told

Companies that do not produce credible plans to pay executive directors the same pension contributions as their workforce by the end of 2022 risk further shareholder dissent over the issue, a new report by the Investment Association (IA) has warned.

The IA said it would begin giving firms that breach its guidelines on directors’ pensions the highest level of warning on its corporate governance research site ahead of the 2020 AGM season.

Read more: Three in 10 FTSE 100 companies cut executive pensions as investor pressure mounts

Companies that pay directors more than 25 per cent of salary as a pension contribution and has not set out a “credible” plan to reduce the contribution by 2022, or companies that appoint new directors with pension contributions out of line with the workforce will be given ‘red tops’ on its Institutional Voting Information Service (IVIS), the IA said.

Executive pensions have been under intense scrutiny in recent months, with pressure growing on UK firms to cut disparities between pension packages awarded to bosses and the rest of the workforce.

Research published by the IA last month found that a third of firms in the FTSE 100 index had made significant changes to executive directors’ pension contributions, with a quarter of the companies pledging to pay all new directors’ pensions in line with the majority of their workforce.

Read more: Ashtead slashes pension entitlements for top execs

“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,” said IA director of stewardship and governance Andrew Ninan.

“Shareholders want to see that progress continue,” continued Ninan, adding: “Our new guidelines require companies to show they are serious about that ambition and set out a credible action plan to deliver it.”

Frank Field MP, who leads the Work and Pensions Select Committee, said: “Aligning pension contributions for executives with the majority of the workforce is the right and fair thing to do – and as companies have started to see, necessary to keep their workforce and even investors fully on side.

“There is no excuse for any remuneration committee, on a three-year pay review cycle, not to meet the 2022 deadline set by the IA. But, despite the loopholes some of the best paid executives seek, even in the face of an IA badge of shame, there is also nothing to stop responsible executives doing the right and fair thing and voluntarily giving up their old-fashioned, over-inflated packages sooner than that,” he added.