Investment Association (IA) has published The Investment Association Principles of Remuneration for 2021 – Impact on Pensions.
Pension-related payments should not be used as a mechanism for increasing the total remuneration of executives, so reports the IA in its recent publication, “The Investment Association Principles of Remuneration for 2021”. The context to this is the UK Corporate Governance Code which states that pension contribution rates for directors should be aligned with those available to the workforce. IA members consider this to be the rate which applies to the majority of a company’s workforce. The IA expects new executive directors or any director changing role to be appointed on this level of pension contribution. The contribution rates for incumbent executive directors should be aligned over time to the contribution rate available to the majority of the workforce.
In its accompanying letter, the IA explains that, where a remuneration committee fails to disclose a credible action plan to align the pension contributions of incumbent directors to the majority of the workforce rate by the end of 2022, it will “red top” the remuneration report if the pension contributions received by the executive director are 15% or more.
The IA has other expectations too, such as: • payments in lieu of pension scheme participation for directors should be clearly disclosed and treated as a separate non-salary benefit; • there should be informative disclosure identifying incremental value accruing to pension scheme participation for executives and any other superannuation arrangements they enjoy; • changes in pension benefit entitlements or transfer values reflecting significant changes in actuarial and other relevant assumptions should be fully identified and explained; and • where changes to pension benefit entitlements or transfers are made at the discretion of the Remuneration Committee, these should be clearly disclosed, and a justification should be provided.
This shift to a more equitable focus in the reward structure at the top of investment houses is interesting and it comes at a time when companies across all sectors are looking to their employees’ financial wellbeing. A marked difference between high earning executives with pension perks and lower paid employees seems less sustainable now in the financial world hit by COVID-19.