Exec remuneration key concern for pension schemes

Executive remuneration levels have remained a key concern for pension scheme shareholders over the last year, a Pensions and Lifetime Savings Association (PLSA) report has revealed.

In its Annual General Meeting (AGM) review report, it found that 55 resolutions for remuneration-related dissent at FTSE 350 AGMs had been submitted, the same number as 2018, across 43 different companies.

The level of remuneration-related dissent has remained at a five-year high, with the report noting that the average pay for FTSE 100 chief executives has increased to 117 times the average workers.

However, the report also pointed out that firms are “beginning to take note…amid growing investor frustration at the lack of progress”, with the median FTSE 100 chief executive pay falling by 13 per cent over the last year.

PLSA also noted that a number of companies proactively reducing bonuses and executive pension entitlements, in order to “head off” investor dissent.

Following new guidelines from the Investment Association (IA), a number of high street bank chief executives, including Lloyds, Barclays and Santander, reduced their pension entitlement has also recently recieved a warning from IA over it's chief executives pension.

However, the report also found that, following the introduction of new climate change disclosure regulations in 2018 and 2019, there was an “enhanced focus” on ensuring ESG and climate change issues form a key consideration.

Whilst several resolutions relating to climate matters were put forward by shareholders in 2019, the PLSA has predicted that this could increase further in 2020.

Commenting on the report, PLSA policy lead for investment and stewardship, Caroline Escott, said: “The PLSA has long argued that pension funds should use their votes to encourage companies to behave responsibly on issues like executive pay, or to consider the implications for their business models and strategies of climate change.

“As long-term investors, pension funds are ideally placed to encourage companies to behave in a way that ensures sustainable business success.

"We would also urge scheme investors to use the 2020 AGM season to hold directors individually accountable on issues of continued concern – doing so can be a powerful tool to effect change".

“However," Escott added, "it is important to remember that voting is only one way for schemes to engage and make their views known on issues of concern.

"We would encourage pension schemes to consider how to best make use of the full array of engagement tools, including seeking additional meetings with company management, or collective engagement with other investors.”

The analysis from the report will feed into the PLSA’s 2020 Voting Guidelines, which outline voting best practice for pension funds and asset managers, and are expected to be published in the next few weeks.

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