FTSE 350 warned over pension perks

FTSE 350 companies are coming under pressure from an influential shareholder pressure group to clamp down further on executive pension perks and to avoid pandemic-related pay uplifts in order to promote fairness and good employee relations

The Investment Association (IA) said it will now be taking a stronger stance against those companies which have yet to take sufficient action as it released its updated annual pay guidelines.

In a letter sent to the chairs of remuneration committees of FTSE 350 companies, the IA said 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.

The IA said companies 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 chooses to do so is expected to provide a clear rationale.

Andrew Ninian, director of stewardship and corporate governance at the IA, 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.’

Useful links:

IA letter to renumeration chairs

2021 Principles of Renumeration

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