Execs will face shareholder action without pension equity by 2022 - IA

The Investment Association (IA) has told companies that they must pay all executive directors the same pension contribution levels as the majority of their workforce by the end of 2022, or risk shareholder action.

New guidelines published by the IA have stated that companies with existing directors who are paid more than 25 per cent of their salary as a pension contribution will be given a 'red top', the IA’s highest level of warning, if they do not have a credible plan to reduce contributions to the level enjoyed by most of their staff by the end of 2022.

The IA will also 'red top' any company who appoints a new executive director with a pension contribution out of line with the majority of the workforce, or seeks approval for a new remuneration policy that does not explicitly state that any new director will have their pension contribution set in line with the majority of the workforce.

Companies with an existing director who has a pension contribution of over 25 per cent of salary will only receive an 'amber top' tag, as long as they produce plans to align directors' pensions to their general workforces' by 2022.

The new stipulations will come into effect from the start of the 2020 AGM season for companies with year-ends starting on or after 31 December 2019.

The IA says that its members consider aligning pension contributions for executives with the majority of the workforce as a “point of fairness”, and a way of fostering good employee relations. It will also ask companies to publish the pension contributions that they pay to the majority of their workforce, and review those contributions to all employees to ensure they provide an appropriate pension provision for all.

Executive pensions came under increasing shareholder scrutiny in the 2019 AGM season, and as a result of shareholder pressure, over one third of companies in the FTSE 100 made significant changes to their executive directors’ pension contributions, including 25 of companies pledging to pay all new directors pensions in line with the majority of the workforce.

IA director of stewardship and corporate governance, Andrew Ninian, said that the association welcomed the “strong progress” made by some FTSE 100 companies over executive pension contributions.

“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,” he said.

“Shareholders want to see that progress continue, with the aim of pension payments for executives being in line with the majority of the workforce by the end of 2022. 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,” he added.

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