FTSE 100 executive pensions cut under shareholder pressure

Significant progress has been made on bringing executive pension contributions in line with those received by the majority of the workforce, following calls from shareholders for this alignment as an issue of fairness and to foster good employee relations. 

Data published by the Investment Association (IA) reveals that: 98 per cent of FTSE 100 companies analysed have now either aligned the pension contributions of new directors with that of the workforce or committed to doing so.

In addition, 14 FTSE 100 companies reduced pension contributions for existing directors during the year and a further 43 committed to reduce contributions in future years. Six FTSE 100 companies are increasing their workforce rate as part of their effort to align pension contributions.

Ten FTSE 100 companies were, however, issued a red-top by the IA’s Institutional Voting Information Service (IVIS) service for having at least one existing director receiving a pension contribution of 25% or more with no commitment to align this with the rest of the workforce by the end of 2022. A further two companies were issued a red-top for not committing to align the pension contributions of new directors with that of the workforce.

In a letter sent to FTSE 350 companies in April, the investment management industry expressed its commitment to supporting British business during the pandemic by focussing on the most material issues – those which significantly affect a company’s growth, costs or risk exposure – in this year’s AGM season. This was borne out in the latest data from the IA’s Public Register, which tracks shareholder rebellions of more than 20 per cent on individual resolutions, and showed a decrease in the number of FTSE All-Share companies added to the Register compared to last year [116 companies in 2020 and 139 in 2019].  

Investors continued to shine a spotlight on executive pay with 45 FTSE All-Share companies (64 resolutions) added to the Public Register - the only type of resolution which did not see a decrease in shareholder rebellions this year. Director re-election also continued to top investors’ concerns with 46 companies (80 resolutions) added in this year’s AGM season, as shareholders voted against directors for a variety of potential reasons including: overboarding, lack of diversity, and for the decisions made as remuneration or audit committee chairperson. Companies are however doing more to acknowledge shareholder concerns, with almost 90 per cent of those companies added to the Register making a public statement on how they’ll respond to the high level of dissent.

In this unprecedented AGM season, 43 FTSE All Share companies also withdrew AGM resolutions related to dividend payments – a move expected by investors, who asked companies to consider the suitability of dividend payments given current uncertainties, with the expectation that payments will resume once it is prudent to do so.

Chris Cummings, CEO of the Investment Association, says: “Providing directors with the same pension contributions as the rest of the workforce is fundamentally an issue of fairness. Given the economic difficulties many people across the UK are facing, it is only right that the majority of FTSE 100 companies are now aligning their executive pension contributions with their workforce.

“Both companies and shareholders have risen to the challenge of this unprecedented AGM season to ensure robust and effective governance of the UK’s largest companies. Shareholders have continued to hold companies to account on the executive pay and director re-election, while recognising the additional pressure companies have been under. Our industry has also been actively supporting these listed companies by providing additional capital to those in need, with over GBP17.7 billion raised by FTSE All Share companies since the start of the pandemic.”

Business Minister, Lord Callanan said: “No executive should be building up an exorbitant pension fund far and above the majority of their workforce, particularly during this testing time.

“I am really pleased to see the progress the vast majority of FTSE 100 companies have made towards bringing their executive pension contributions in line with the wider workforce, and would urge each and every business on the list to ensure plans are in place by 2022.”