Investors want greater transparency on boardroom pensions | PLSA
Investors want greater transparency on boardroom pensions

Investors want greater transparency on boardroom pensions

15 June 2010

Companies must be more upfront with shareholders about the pension perks of their top executives, a major grouping of institutional investors said today (Tuesday). The investors warned that a lack of transparency around boardroom pensions is an obstacle to shareholder scrutiny, and that generous pensions risk rewarding bosses for poor performance.

The National Association of Pension Funds (NAPF) and the Local Authority Pension Fund Forum (LAPFF), whose members hold £800bn and £85bn of assets respectively, have written to the chairman of every company in the FTSE 350. The letter notes that firms already offer some information about boardroom pensions, but it calls on them to volunteer more, so that shareholders can judge total pay policies more effectively.

Pensions are not linked to performance in the same way that annual pay, share options or bonuses are. The NAPF and LAPFF are concerned that the generous pension terms found in many boardrooms could reward directors in their retirement despite failure in the job.The letter does not call for directors’ pensions to be cut, but argues that more clarity is needed so that shareholders can make a fully informed decision.

It also warns that boardroom pensions which have significantly higher accrual or contribution rates than those available to other employees could be seen as unfair if not fully explained.

Joanne Segars, Chief Executive, NAPF, said:

“There should be no reward for failure, and pensions must be scrutinised as a key part of the overall pay package. Pensions are not usually linked to performance and so must not become a back door to increasing directors’ pay.

“Where boardroom pensions are more generous than those on the shop floor, investors may have questions about fairness that need to be answered.

“Shareholders need to see what’s going on under the bonnet if they’re to hold management to account. We hope that companies heed our call for greater transparency.”

Ian Greenwood, Chair of the LAPFF, said:

“The most important thing is transparency. At present it sometimes isn’t possible for investors to take an informed view on directors’ pensions arrangements because of the lack of clarity in some remuneration reports.

“If companies set out clearly what retirement provision is in place for directors, this will greatly aid shareholder understanding. Therefore we hope companies will respond positively to this initiative.”


The NAPF and LAPFF are calling for greater transparency on:

1. Accrual rates in defined benefit pensions, which include ‘final salary’ schemes. Some directors benefit from a rapid accrual rate, such as 1/30 th, when other employees may typically be on a rate of 1/60th or 1/80th .

2. Company contributions to defined contribution pension schemes. Recent studies have shown that directors’ contributions are often far higher than those made to other staff.

3. Payments in lieu of pensions. An increasing number of firms offer cash payments instead of a pension contribution. These can be sizeable – in some cases over 50% of salary.

4. The retirement ages of directors. The reasons for any differences between the boardroom and other employees should be explained.

5. Special early retirement provisions. Firms should make it clear that an unreduced pension on early retirement is usually inappropriate.

Currently a company’s remuneration report, which shareholders have to approve, carries a mixture of mandatory disclosures under the Directors Remuneration Reporting Regulations (DRRR) and further voluntary reporting. Some of the enhanced provisions available to directors raised in the joint NAPF/LAPFF letter are not captured by the mandatory disclosure requirements, and so a number of companies do not make them explicit. However, in order for shareholders to exercise effective oversight it is important that the market as a whole adheres to best practice in the reporting of directors’ pensions, and the NAPF and LAPFF hope that all companies will follow their suggestions.


Notes to Editors:

A copy of the letter can be obtained through the NAPF Press Office.

The Local Authority Pension Fund Forum (LAPFF,, which was
set up in 1991, is a voluntary association of 52 public sector pension funds based in the UK. It exists ‘to promote the long-term investment interests of local authority  pension funds, and to maximise their influence as shareholders to promote corporate responsibility and high standards of corporate governance amongst the companies in which they invest.’ The Forum’s members currently have combined assets of over £85 billion.  

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