IA reveals stricter executive pension guidelines

The Investment Association (IA) has written to FTSE 350 companies informing them of changes to its executive pension guidelines.

Its Institutional Voting Information Service (IVIS) will give ‘red-top’ warnings to companies that fail to draw up a credible plan to align incumbent directors’ pension contributions with the wider workforce by the end of 2022 if they are receiving 15 per cent of salary or higher.

Previously, the IA had set the threshold at 25 per cent of salary. New executive directors’ contributions are expected to continue to be automatically be aligned with the wider workforce’s when they join.

The red-top warning is the highest level of warning issued by the IVIS, and is also issued when an executive director or director changes role and their contributions are not aligned with the workforce’s.

Commenting on the announcement, IA director of stewardship and corporate governance, Andrew Ninian, said: “With coronavirus continuing to hit household finances across the UK, investors expect companies to treat their executive directors and workforce consistently when it comes to pay. Investors will be paying close attention to ensure pay remains linked to the experiences of shareholders, employees and other stakeholders.

“Aligning executive directors’ pension contributions with the rest of workforce is fundamentally an issue of fairness. Investors have already played an important role in bringing about change and today’s announcement will further increase the pressure on those companies that have yet to take action.”

In the letter, the IA stated that its members “welcome the leadership” shown by the “significant number” of companies who have voluntarily reduced their pension contributions.

Its new guidelines will apply when the association analyses companies with year-ends starting on or after 31 December 2020.

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