Chief executives at Britain’s biggest companies are receiving four times the level of pension contributions than their average employees, according to a new analysis of a gulf that is stoking shareholder anger.
FTSE 100 chief executives received pension contributions of 25 per cent of pay last year, compared with an average of about 6 per cent for employees, according to a report published on Tuesday by actuarial consultants Lane Clark & Peacock.
The data — which applies to the 83 companies in the FTSE 100 that have defined benefit pensions — comes as investors step up pressure over high pensions for top management.
Nine of the companies were contributing more than 35 per cent of pay to CEO pensions, including Tui, Standard Chartered and Ashtead. At only 15 per cent of the companies were workers and company bosses receiving the same percentage of salary in pension contributions.
“This is an issue of fairness,” said Andrew Ninian, a director of The Investment Association, whose members manage more than £7tn of assets. “Shareholders expect directors to receive pension contributions that are in line with the majority of the workforce.”
The increased pension scrutiny has come from investors, regulators and MPs. Last week, two parliamentary committees called on investors to vote against Lloyds Banking Group’s pay report, criticising the size of pension payouts for chief executive António Horta-Osório and incoming finance director William Chalmers.
Last year, Mr Horta-Osório’s total pay included a payment in lieu of pension contributions that was worth £573,000, or 46 per cent of his base salary. That will be cut this year to 33 per cent of base salary, but for most Lloyds employees, 13 per cent is the maximum available contribution.
Mr Chalmers’ pension allowance is 25 per cent of his base salary.
“When can we hope to see an end to this profoundly unedifying spectacle: handsomely paid executives squirming, with ever-increasing desperation, to justify pension rates several times those of their workforce?” said Frank Field MP, chair of the Work and Pensions Select Committee.
The LCP report also highlighted a growing gulf between FTSE 100 payouts to shareholders and contributions to their pension schemes.
According to the analysis, companies paid £90bn of dividends in 2018, about seven times as much as the £13bn they paid into their defined benefit pension schemes, and up from a multiple of six times in 2017.
The UK Pensions Regulator has stepped up its efforts to make healthy companies clear their pension deficits more quickly.
The report also raises concerns that proposed changes to international accounting rules could weaken FTSE 100 balance sheets by up to £100bn.
“Depending on what the new rules say, they could affect most or all UK companies, rather than just a handful at present.”