REVEALED: The chiefs raking in contributions that boost their pay by up to 66%
IT IS seen by many as a gravy train for retired company bosses keen to feather their nests while doling out advice to busy executives.
But major shareholders are finally shining a light on the shadowy company committees that decide vast executive pay deals behind closed doors.
The Investment Association has rounded on executive paymasters for failing to look out for shareholders and handing out rewards that are far out of kilter with the rest of us.
In a letter sent to London Stock Exchange-listed boards last week the representative of the City’s major shareholders said some pay committees had become ‘unresponsive to investor concerns’ and that ‘too often remuneration committees are overly considerate of the management perspective, often at the expense of their shareholders’ views’.
That comes perilously close to
A warning shot as shareholders reach end of their tether
accusing bosses of failing in their duties to shareholders, which would be a serious dereliction under company rules.
It is a warning shot that follows a year in which corporate governance and pay concerns at companies including BT, Lloyds, Royal Dutch Shell, Royal Mail and Persimmon have been in the spotlight. Shareholders, it seems, have reached the end of their tether.
High on the list of grievances in the letter are the huge pension payouts for bosses.
The ten worst offenders collectively received contributions to their pension pots of £5.1million last year – an average of more than half a million pounds each.
They include Lloyds Banking Group chief executive Antonio Horta-Osorio, who received £565,000, or 46 per cent on top of his salary. Alistair Phillips-Davies, chief executive at energy firm SSE, received £446,000, or 52 per cent in addition to his salary.
Other bosses who did not make the top ten still received huge payouts. A quarter of the FTSE100 received an extra 30 per cent or more on top of their salary, well above that of the rank and file where less than 10 per cent is more normal after many gold-plated schemes were scrapped.
Now The Investment Association says it intends to apply pressure to ensure that a fresh view of perks and pay is applied to new appointments. It even suggested that current contracts should be reviewed.
A statement said: ‘Executive remuneration is a growing reputational issue for companies, individual remuneration committee members and now the executive directors who receive the remuneration in question.’ It said company boards ‘can no longer rely solely on the contractual nature of a remuneration payment’ and should from now on ‘consider the issue of fairness’.
A new UK Corporate Governance Code includes details of the gap between the average pay of their staff and the salaries of bosses, it added.
Companies argue that long-serving bosses are only awarded such high pensions because they belong to standard defined benefit schemes. However, some admit bosses get membership of the schemes plus additional payments on top.
Firms also highlighted that many of the worst cases have been approved by a majority of shareholders at annual meetings.
Tool rental group Ashtead said it makes a payment to Geoff Drabble in lieu of providing him with any pension arrangements. This was agreed prior to his joining in 2006 and ‘reflected the fact that he was leaving a generous defined benefit arrangement at his previous employer’.
Energy supplier SSE said of Alistair Phillips Davies: ‘Alistair’s pension is provided in two different ways. Part of it is provided through the Southern Electric Scheme and part of it through an additional pension arrangement.’
Royal Mail is among firms that have already taken action and made changes to executive pay following pressure from shareholders. In 2016 the company said it recognised that executive pensions were high, and that it ‘would adopt a lower percentage for newly appointed executive directors’. It has since slashed pension contributions to directors from 36.5 per cent to 17.5 per cent, which it says is based on the average for FTSE100 bosses. Its 110,000 postmen receive 13.6 per cent employer contributions, announced in February, plus 2 per cent towards death in service and sickness benefits. However, nonexecutive director Orna Ni-Chionna admitted last month management was ‘embarrassed’ by its failure to win over shareholders on pay, resulting in a major revolt in July.
Nearly three quarters of investors complained about the £5.8million ‘golden hello’ paid to the chief executive Rico Back.
Called before the cross-party Business Select Committee, NiChionna said: ‘Obviously, that was a huge disappointment and a shock to us. We thought we’d explained it well [to investors]. That is the mistake that we made.’
Publisher Pearson, which faced a major shareholder revolt over pay in 2017, said it has cut pension payments to chief executive John Fallon from 40 per cent to 26 per cent which it said was now ‘in line with industry averages’.
Contributions for new board members ‘will be reduced further to 16 per cent of salary, which is the standard rate applicable to all employees.’
Building materials company CRH declined to provide a statement while a source close to information group RELX said Engstrom’s contributions were expected to fall in the current year.
Travel company Tui said: ‘The maths is generally correct, however, a more complete reflection would be to take into account full remuneration package – the simple base salary can distort.’
The worst offenders received more than half a million pounds