This Minerva briefing on Executive Pensions in the UK 2019 looks at the issue of pension fairness in the FTSE 100. It examines developments in executive preferential pension and details how companies in the FTSE 100 have been responding to the issue in remuneration policy renewals.
Very few investors doubt that the need for board talent to ensure the success of business is a central pillar of good governance. Nevertheless, with the growing distrust of business now a central theme of regulatory action, there are some basic principles of fairness which companies should address if they wish to convince their wider stakeholders that business is working in everyone’s interests. Executive directors already earn considerably more than their employees and therefore accrue greater pension benefits on the same terms and so there is no rational business case for favourable treatment of directors when compared to rank and file employees.
Generous pensions ratchet up total remuneration
In the UK, HMRC only allows the first £10,000 of pension contribution to be tax effective and there is a lifetime allowance of £1 million. Realigning pensions would reduce overall pay by around 7%, as currently pension equals 7% of total remuneration realised for the average top 100 chief executive (Source: The Manifest Total Remuneration Survey 2018).
Pensions disparity – a long-standing problem
The issue of pension disparity between executives and employees is a long-standing problem. The high-profile case of (formerly) Sir Fred Goodwin at Royal Bank of Scotland (RBS) brought the hidden costs of executive pensions into the spotlight as far back as 2009. But even before the global financial crisis pensions disparity has been under the microscope.
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About The Minerva Regulatory Briefings
Minerva’s regulatory briefings look at new and emerging issues from the UK and Continental European perspective. Also Available:
• Board Evaluation in Europe
• Board Gender Diversity in Europe
• Board Independence – A Global Review
• Chair Independence in the UK
• Cybersecurity Disclosures (in association with ICGN Year Book)
• Employee Board Representation in Europe
• Global Research and Voting Policy Guidelines 2019
• Investment Association Remuneration Guidelines
• Shareholder Rights Directive II
• Sustainability and Remuneration
• Tax Secrecy
• UK Regulatory Round-up
• UK Voting Trends 2014-2018 (in association with PLSA)
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