Force CEOs to join company pension plan to stop mismanagement - WBS

Company bosses should be forced to join the same pension plan as their staff, rather than face prison terms for the mismanagement of their schemes, Warwick Business School (WBS) has suggested.

According to WBS research, CEOs are 77 per cent less likely to close the company’s defined benefit scheme if they are a member of the plan, while they are 62 per cent more likely to close an underfunded scheme if they are a member of a separate executive scheme.

The study, conducted by WBS, University of Exeter Business School and Queen Mary University, examined 322 publically listed firms that offered a DB scheme between 1999 and 2013.

It found that 74 per cent of schemes were in deficit, to a total of £560bn.

WBS professor, Joanne Horton, said: “If the government wants to tackle ‘reckless’ executives who undermine company pension schemes, they could harness CEO self-interest.

“Shareholders do it all the time. They offer CEOs stock options to ensure they share their interests, including closing the firm’s defined-benefit pension scheme.”

According to the research, CEO DB membership of the main scheme also reduced the negative impact it on the company’s credit rating, after it found that firms with underfunded pension plans find it harder to borrow money.

Horton added that it could prevent future Carillions from taking place.

“If Carillion CEO Richard Howson and his executives had been members of the company’s main pension plan the outcome might have been different,” she said.

“If they had paid more into the main pension plan alongside their employees, instead of having their own executive pension scheme, they would have stood to lose the most when the company collapsed.”

Earlier this week, Secretary of State for Work and Pensions Amber Rudd outlined plans to introduce a seven-year jail term for the “wilful or reckless behaviour” of company directors who play “fast and loose” with their pension scheme.

However, the pensions industry reacted with scepticism, and said that there was “serious doubts” over how easy it will be to establish a framework that will successfully challenge directors’ misdemeanours in a criminal case.

As well as the proposed jail term, the government released a package of measures to help better protect scheme members, including improving TPR’s ability to monitor corporate events, updating its information gathering powers and improving its anti-avoidance powers.

The government said it will bring forward legislation "as soon as parliamentary time allows" and that it will continue to engage with stakeholders.

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