Investors to target pension perks and poor diversity in 2019 AGM season

Thursday 21st February

Ahead of the starting gun being fired on the 2019 AGM season, the Investment Association (IA) has announced it will highlight companies who are lagging behind on diversity, or pay pension contributions to executive directors at rates above the majority of the workforce.

The IA’s Institutional Voting Information Service (IVIS) which provides corporate governance research to shareholders to aid their voting decisions during AGM season, will ‘red-top’ companies who pay newly-appointed directors pension contributions which are not in line with the majority of their employees. A red-top represents the highest level of warning IVIS issues and is reserved for companies where shareholders should have the most significant and serious concerns.

IVIS will also ‘red top’ companies that have no or only one women on their board. IVIS will also issue an ‘amber-top’ (the second highest warning) to companies not on course to meet the requirements of the Hampton-Alexander review, for 33% of women on their board by 2020. IVIS will highlight any board with women representing 25% or less.

Andrew Ninian, Director of Stewardship and Corporate Governance at the Investment Association, said:

“The IA’s Remuneration Principles set out shareholder expectations on executive pension contributions and our members have been clear this is an issue of fairness and pension contributions should be aligned with the majority of the workforce.

“The new IVIS approach reflects our members’ view that newly appointed directors should receive a pension contribution equal to that of the majority of the workforce. IVIS will highlight those companies that pay higher pension contributions to newly appointed directors.

“Similarly, the Hampton-Alexander review has set the roadmap to deliver greater diversity in the boardroom, but a frustratingly high number of companies are still failing to follow it. Our strengthened IVIS approach reflects the fact investors want to see companies do more than take a tokenistic step of appointing a single woman to their board and consider that job done.

“Evidence clearly shows that more diverse boardrooms make better decisions. Investors want to see greater diversity in the companies they invest in to ensure our savers and investors are getting the best returns possible.”

ENDS

For further information, please contact:

• Ben Rathe, Senior Communications Manager: [email protected]
• Helen Ayres, Communications Manager: [email protected]

T +44 (0)20 7831 0898
IA press office: [email protected]

Notes to Editors

• In November 2018, the Investment Association published their ‘Principles of Remuneration’ which set out investor expectations on executive pay, and highlighted high pension contributions as a key concern. It said:
  • Pension related payments should not be used as a mechanism for increasing total remuneration. The pension provision for executive directors should be in line with the general approach to the employees as a whole. The UK Corporate Governance Code states that pension contribution rates should be aligned with those available to the workforce. IA members consider this to be the rate which is given to the majority of the company’s workforce. Investors expect new executive directors or any director changing role to be appointed on this level of pension contributionThe IVIS policy changes in full are:

On executive pensions

• For companies with year-ends on or after 31 December 2018, any new remuneration policy that does not explicitly state that any new executive director appointee will have their pension contribution set in line with the majority of the workforce will receive a red top on the remuneration policy
• Any new executive director appointee from 1 March 2019 whose pension contribution is above the level of the majority of the workforce will result in a red top on the remuneration report
• Any existing executive director receiving a pension contribution of 25% of salary or more will be amber topped on the remuneration policy and remuneration report

On diversity

• Apply a red top to FTSE 350 companies where there is none or only one woman on the board (except for instances where the 33% Hampton Alexander target has been met)
• Apply an amber top to FTSE 350 companies where there is more than one woman, but less than 25% of the board are women. These companies are unlikely to meet the recommendation of the Hampton-Alexander Review of 33% of women on board by 2020.
• Apply an amber top to FTSE Small Cap companies where less than 25% of the board are women.

About the Investment Association (IA):

• The IA champions UK asset management, supporting British savers, investors and businesses. Our 250 members manage £7.7 trillion of assets and the asset management industry supports 100,000 jobs across the UK.
• Our mission is to make investment better. Better for clients, so they achieve their financial goals. Better for companies, so they get the capital they need to grow. And better for the economy, so everyone prospers.
• Our purpose is to ensure investment managers are in the best possible position to:
  • Build people’s resilience to financial adversityo Help people achieve their financial aspirations
  • Enable people to maintain a decent standard of living as they grow older
  • Contribute to economic growth through the efficient allocation of capital.
• The money our members manage is in a wide variety of investment vehicles including authorised investment funds, pension funds and stocks and shares ISAs.
• The UK is the second largest investment management centre in the world, after the US and manages 35% of all assets managed in Europe.