UK pension schemes consult on Fair Reward Framework

A group of UK asset owners, including a number of pension schemes, has launched a consultation on the Fair Reward Framework (FRF), ahead of plans to launch the pilot year of assessments in 2024.

The framework aims to challenge all stakeholders to think more broadly about what factors lead to success and which approaches engender a fair division of the resulting rewards.

It argued that no single indicator should be taken in isolation but should instead be viewed in combination, recognising the company’s internal dynamics as well as how it pays back to shareholders and society.

It was developed in response to the long-standing debates around corporate pay, and what can be frequent tensions between companies, shareholders and wider stakeholders about who and what within a company contributes to creating value and how that is rewarded.

The draft framework is divided into three main sections: company characteristics, pay scrutiny process, and reward outcomes.

Convened by the Church of England Pensions Board and Brunel Pension Partnership, in partnership with the High Pay Centre, the FRF was developed on behalf of and with the input of a group of 11 UK Asset Owners.

This includes Nest, Local Pensions Partnership Investments, the Pension Protection Fund, People’s Partnership, Railpen, Scottish Widows, and Universities Superannuation Scheme.

Commenting on the plans, Church of England Pensions Board director for social (responsible investment), Clare Richards, said: “The draft FRF as it stands is the distillation of months of meetings between asset owners to determine what we believe the markers are of good processes and practice when it comes to fair reward. We don’t think we have all the answers.

"We are keen to receive the views of advocates and decision makers connected with corporate pay, so that we can refine this framework ahead of launching the pilot year of assessments.“

Adding to this, Nest head of responsible investment, Diandra Soobiah, stated: “Executive pay is an investment risk we want to manage at Nest. Burgeoning boardroom pay can bring disillusionment and erode trust in organisations, and there’s no clear link to improved corporate performance.

"Companies should be refocusing their efforts to boost the pay of their whole workforce who play a key role in delivering corporate success. Fairer pay to all has shown to improve long-term corporate performance, reduce costly recruitments and stem wider economic inequality.

“We hope the Fair Reward Framework will encourage companies to rethink the way they reward executives and the wider workforce and move towards a fairer and more equitable pay structure.”

Brunel Pension Partnership head of stewardship, Vaishnavi Ravishankar, added: “Through this initiative, we are signalling that executive remuneration should be evaluated on how companies are delivering value to their workforce and society more broadly, in addition to shareholders.

"We are delighted to reach a stage where we can benefit from feedback on the indicators that our asset owner group has identified as relevant to this decision making.”

The consultation is open for feedback until 27 October 2023.

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