Shareholder pressure pushes FTSE 100 firms to cut CEO pensions

Britain’s biggest companies are cutting their pension contributions to their top brass following mounting criticism from shareholders, according to research by the Investment Association (IA).

As a result, out of 93 of FTSE 100 (^FTSE) firms that held their 2020 annual meetings in September, 98% have aligned directors' defined benefit pension contributions with those of employees.

Meanwhile, 14 companies reduced pension contributions for existing directors during the year and 43 firms committed to doing so in in the near future.

The boost comes as firms bowed to shareholder pressure to align their pension packages “as an issue of fairness and to foster good employee relations,” the IA said.

However, the study also showed that there is some progress to be made as 10 FTSE companies were handed 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 also issued a red-top for not committing to align the pension contributions of new directors with that of the workforce.

Speaking on the announcement, 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.”

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In April, a letter sent to to FTSE 350 companies, expressed the commitment of the investment management industry to support British business during COVID-19 by focussing issues which significantly impact a company’s growth, costs or risk exposure — in this year’s AGM season.

Firms on the FTSE All-Share index suffered 116 shareholder rebellions, down from 139 last year, as investors gave boards leeway to focus on navigating the coronavirus crisis. Executive pay was the only issue on which the number of rejected resolutions didn’t fall.

CEO of IA, Chris Cummings, said: “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 £17.7bn (£23bn) raised by FTSE All Share companies since the start of the pandemic.”

The IA represents money managers with £8.5tn in assets under management.

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