Align directors' pensions to workers or face rebellion, investors warn

Under new guidelines companies need to publish their pension contributions. Photo: Getty Images

Companies must align directors’ pension contributions with those of the wider workforce by 2022, or they risk “shareholder dissent”, a trade body has warned.

The Investment Association (IA) said on Friday firms must set a “credible plan”, by the end of 2020, to pay all executive directors the same in pension contributions as the majority of their workforce.

The plans should show pension payments for executives being in line with workers’ by the end of 2022.

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If companies don’t produce these plans, they risk shareholder “dissent” and “rebellion”, the IA said.

Those with existing directors who are paid more than 25% of their salary in pension contributions will be given the the highest level of warning.

A third of FTSE 100 companies altered their directors’ pension contributions earlier this year, under shareholder pressure. A quarter pledged to pay new directors’ pensions in line with the majority their workforce.

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The IA said executive pay is a “growing reputation issue” for companies, with potential adverse impacts on their long-term value.

Aligning executive and worker pension contributions is simply “a point of fairness” and necessary to foster good employee relations, the trade body added.

Andrew Ninian at the IA said: “We welcome the strong progress a number of companies have made towards bringing executive pension contributions in line with their workforce.

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“We are particularly pleased that some companies have used this shareholder scrutiny as an opportunity to assess whether their broader workforce contribution rates are appropriate.”

He added: “Shareholders want to see that progress continue. Companies with high executive pension payments, that don’t provide that plan, risk facing further shareholder rebellions in [2020].”

Under the new guidelines, firms will also now be asked to publish the pension contributions they pay, and review them with employees, to ensure everyone receives an appropriate pension provision.