Trade body to expose companies awarding excessive pensions

The UK's Investment Association will also target companies lagging on diversity

The Investment Association intends to name and shame Britain’s biggest companies that are helping their top brass to larger pension contributions than the rest of the workforce and falling short on board diversity.

The UK trade body through its Institutional Voting Information Service (IVIS) will publish research ahead of the 2019 AGM season to aid shareholders in their decision-making process. Companies they have the most serious concerns about will be flagged with a ‘red top’.

The red top offenders will include firms that pay newly-appointed directors at pension contribution rates higher than most employees starting from 1 March 2019. Companies with year ends on or after 31 December 2018 that have not explicitly stated pensions of new directors will be in line with the majority of staff will also receive a red top.

Existing directors who receive pension contributions of 25% of their salary or more will be given an ‘amber top’.

“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,” said Andrew Ninian, director of stewardship and corporate governance at the IA.

“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.”

Investors want more than token gender diversity

The IVIS will also be alerting investors to companies it believes are failing on the diversity front.

FTSE 350 firms with zero or only one female board member will receive a red top except for instances where the Hampton-Alexander target, which calls for women to make up 33% of FTSE boards by 2020, has been met.

Amber tops will be doled out to companies where there is more than one woman but less than 25% of the board is female.

Ninian said that despite investor demand for more diversity at the executive level and guidelines like the Hampton-Alexander review in place, “a frustratingly high number of companies” are still failing to address the problems at hand.

“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,” he said.

“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.”

Hermes Investment Management’s stewardship service has also vowed to take a tougher stance on gender diversity this AGM season by voting against FTSE chairs who fail to address executive committee or boards lacking in female representation.

Last April in light of gender pay gap data being released in the UK for the first time the IA wrote to several high profile British businesses, including Smurfit Kappa, St James’s Place and Provident Financial asking them to explain their all-male executive committees.

– This article first appeared on ESG Clarity‘s sister site, Portfolio Adviser.