Lloyds ‘behind the curve’ on executive pensions

MPs have accused Lloyds Banking Group of being “behind the curve” on the implementation of the Investment Associations (IA) guidelines on executive pensions.

In a Work and Pensions Select Committee hearing on executive pensions yesterday (19 June), committee chair Frank Field accused Lloyds Banking Group chair of the remuneration committee, Stuart Sinclair, of being slow to align the remuneration policy of the firm to its wider workforce.

The criticism comes after the bank’s chief executive António Horta-Osório’s contribution rate was cut from from 46 per cent to 33 per cent, while the average employer contribution rate remained between 8 to 12 per cent.

Sinclair defend the company’s remuneration policy by stating that the firm is early in its current three-year remuneration cycle, and that it is currently overseeing a redesign of its compensation package of which pensions is just one part.

“We are beginning as we speak to redesign compensation of which pensions is just one part. I don’t want to start with the pension question, we have a once in a few years opportunity to set back and say ‘what do we want to reward?’ … and they will be financial outcomes and social, environmental and governance (ESG) outcomes. Then there will be remuneration and then pensions pops out,” he said.

In contrast, HSBC, who also gave evidence to the committee, described how their executives took the voluntary decision to cut their pensions from 30 per cent.

HSBC group general manager, Alex Lowen, said: “The executive directors currently at HSBC, CFO, CRO, CEO had a contract that had pension contributions at 30 per cent allowance, however the made a voluntary personal decision to reduce that and they accepted a new contract with a lower amount, following the IA paper.

“The IA was obviously focused on new policy and new executive appointments, but it was our current executive directors who made the decision to drive their pension down.”

In February, the IA published guidelines that said it will target companies paying newly appointed directors pension contributions at rates above the majority of their workforce.

HSBC chairman of the remuneration committee, Pauline can der Meer Morh, added: “The driving factor is that we care about good governance, we care about shareholder support and we care about doing the right thing, and the combination led to this conclusion.

“We think alignment is important and the IA obviously think alignment is important so we look at the broader workforce and the executives and try to align as best as we can.”

During the hearing, MPs pointed out that shortly after Horta-Osório’s pension contribution reduction from 46 to 33 per cent, totaling a £167,000 annually, he was awarded a fixed-share allowance totaling £150,000 over fiver years.

His pension was cut from £574,000 to £407,000 annually, however last year his overall package increased by £19,000 to £2,895,288. The average salary of a Lloyds employee is £37,000.

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