On 27 September 2019, the Investment Association (IA) issued an update on the position which its Institutional Voting Information Service (IVIS) will take on executive pension contributions for listed companies with year-ends starting on or after 31 December 2019.

While welcoming the progress a number of companies have made in this area, the IA warned that listed companies must “set a credible plan to pay all executive directors the same pension contributions as the majority of their workforce by the end of 2022 or risk further shareholder dissent“.

The new guidelines follow on from last year’s changes to the UK Corporate Governance Code and the IA’s Principles of Remuneration on aligning executive pension contributions with the wider workforce. The updated approach has been published ahead of next year’s AGM season.

For listed companies with year-ends starting on or after 31 December 2019, IVIS will from the start of the 2020 AGM season:

  • ‘Amber top’ any company with an existing director who has a pension contribution over 25% of salary, as long as they have set out a credible plan to reduce that pension to the level of the majority of the workforce by the end of 2022.
  • ‘Red top’ any company with an existing director who has a pension contribution over 25% of salary and has not set out a credible plan to reduce that contribution to the level of the majority of the workforce by the end of 2022.
  • ‘Red top’ any company that appoints or changes the role of an executive director whose pension contribution is out of line with the majority of the workforce, and ‘red top’ any company that seeks approval for a new remuneration policy which does not explicitly state that any new director will have their pension contribution set in line with the majority of the workforce.

The IA states that its members consider aligning pension contributions for executives with the majority of the workforce to be a point of fairness in order to foster good employee relations.

Michael Carter comments that “the IA’s updated position is not unexpected, is widely supported, and continues to increase the focus of shareholders on executive pensions.”

The IA intends to publish its updated Principles of Remuneration, covering remuneration structures more generally, later this month (October 2019).