Investors clampdown on executive pension perks

Investors will be clamping down further on executive pension perks in a move to promote fairness and good employee relations, the Investment Association's (IA) updated annual pay guidelines for companies today reveals.

Previously, it was common for pensions contributions for executives to be considerably higher than for the wider workforce. Although significant progress has been made on bringing executive pension contributions in line with the majority of the workforce, investors, having called for this in previous years, will now be taking a stronger stance against those companies which have yet to take sufficient action.

In a letter sent to the Chairs of Remuneration Committees of FTSE 350 companies, the IA informed companies that its Institutional Voting Information Service (IVIS) will be giving a red-top, its highest level of warning, to those that fail to draw up a credible action plan to align incumbent directors’ pension contributions by the end of 2022, if they are 15% of salary or more. This lowers the threshold from last year, which was set at 25% of salary. New executive directors are expected to automatically join with a pension contribution aligned to the workforce rate.

As the IA set out in March, investment managers want to support companies through the pandemic to ensure they remain good investments over the long-term. This has been demonstrated through ongoing support and the provision of additional capital, with over £18 billion raised by FTSE All Share companies since the start of March.

However, in light of coronavirus, investors have again cautioned companies to treat their executives in line with the rest of the workforce and remain mindful of the pandemic’s impact on society. Firms are expected to balance the need to incentivise executive performance, while reflecting the experience of investors, employees, and other stakeholders. As a result, investors have warned remuneration committees not to compensate executives for reduced pay as a result of the pandemic by adjusting next year’s remuneration, whether through ‘catch up’ awards or disproportionate salary increases. Investors also do not generally expect bonuses to be paid if a company has taken government or shareholder support – any company that choses to do so is expected to provide a clear rationale.

Andrew Ninian, Director of Stewardship and Corporate Governance at the Investment Association, 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 the 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.”

Notes to Editors:

To view the letter sent to FTSE 350 companies: click here

To view the 2021 Principles of Remuneration: click here

To view the updated guidance on executive remuneration in light of COVID-19: click here

2021 IVIS approach on pensions:

  • The IA’s Principles of Remuneration have stated since 2019 that companies should have a credible action plan to align incumbent directors’ pension contributions with the majority of the workforce by the end of 2022.
  • Any new remuneration policy that does not explicitly state that any new executive director appointed will have their pension contribution set in line with the majority of the workforce will result in a red top on the remuneration policy.
  • Any new executive director or director changing role whose pension contribution is not aligned with the level of the majority of the workforce will result in a red top on the remuneration report.
  • Where the remuneration committee has not disclosed a credible action plan to reduce the director’s pension contribution to the majority of the workforce rate by the end of 2022, IVIS will red top the remuneration report if the pension contribution received by the executive director is 15% or more.

For further information, please contact:

Katie Martin, Head of Communications: [email protected]

T: +44 (0)20 7269 4655

Helen Ayres, Communications Manager: [email protected] 

T: +44 (0)20 7269 4620

David Parton, Communications Executive: [email protected]

T: +44 (0)20 7269 4625

IA press office: [email protected]

T: 020 7269 4696

About the Investment Association (IA):

  • The IA champions UK investment management, supporting British savers, investors and businesses. Our 250 members manage £8.5 trillion of assets and the investment management industry supports 113,000 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 adversity
    • 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 over a third (37%) of all assets managed in Europe.