The Investment Association (“IA”) has recently published a new statement relating to executive directors’ pension contributions. The guidance is the next step from the IA’s statement in February 2019 and Good Stewardship Guide 2019, which call for executive directors’ paid pension contributions to be in line with the majority of the workforce.

Under the guidance, in respect of year-ends starting on or after 31 December 2019:

• Any company with an existing director who is paid a pension contribution of 25% of salary or more and has a credible plan to reduce that pension to the same level as the majority of their workforce by the end of 2022, will be given an “amber top”;
• Any company with an existing director who is paid 25% of salary or more as a pension contribution but no credible plan to reduce the contribution to the same level as the majority of the workforce by the end of 2022, will be given a “red top”; and
• Any company who appoints a new executive director, or a director changes role, with a pension contribution out of line with the majority of the workforce, or seeks approval for a new remuneration policy which does not explicitly state that any new director will have their pension contribution set in line with the majority of the workforce, will also be given a “red top”.

Companies will also be asked to publish the pension contribution rates they pay to the majority of the workforce and explain how that rate has been derived. Companies should also review those rates to ensure they are appropriate for all.

The guidelines are part of a wider pay package, which shareholders take into account when scrutinising companies, and the movement towards greater fairness and fostering good employee relations in companies.

The IA is due to publish its updated Principles of Remuneration in October, which will cover the IA members’ expectations on other areas of the remuneration structure.