personal finance

Investors are right to target pension payments

The battle to curb lavish executive pay in the UK tends to be fought on one front at a time. A few years ago, it was long-term incentive plans. This year, the focus is executive pensions. To his irritation, that has thrust Bill Winters, the US-born chief executive of Standard Chartered, into the spotlight. Mr Winters has chided as “immature and unhelpful” a protest by some institutional shareholders against the bank’s remuneration policy — and his £474,000 pension allowance — that led in May to the biggest protest vote at a UK bank for five years.

Mr Winters’ exasperation is partly understandable. He is not in the mould of the hard-charging American banker. His total pay is a fraction of that of US counterparts — including his former colleagues at JPMorgan. Mr Winters says a sizeable portion of Standard Chartered’s shareholder base was consulted on changes to its pay policy and raised no significant questions, before some institutions and proxy advisers seized on pension contributions as an issue this year.

Yet the StanChart chief’s comments were ill-considered. By branding them “immature”, Mr Winters belittles the crucial role of shareholders in ensuring proper oversight at banks and other companies. Investors have a right, too, to alter positions on issues over time, as rules and thinking evolve and information comes to light.

In this case, a change in Britain’s Corporate Governance Code last year — to say pension contributions to executive directors “should be aligned with those available to the workforce” — brought such payments under scrutiny. It also left StanChart and its CEO among the outliers. A study in May found Mr Winters — whose pension allowance was 40 per cent of his basic cash salary — was one of only nine FTSE 100 chief executives with a contribution rate higher than 35 per cent. It found average employees received about 6 per cent.

Moreover, StanChart did not cut the contribution to its CEO, but halved the reported percentage to 20 per cent by changing the methodology and basing it on a “total salary” including both cash and share payments. That does look, as one proxy adviser called it, “disingenuous”. The bank says it will cut pension contributions for new executives to 10 per cent, in line with the StanChart rank and file, and consult shareholders further.

It can be tricky for companies to adjust contributions to existing executives without violating contracts. But some banks have gone further. HSBC said it would cut the pension allowances to its CEO, John Flint, from 30 per cent to 10 per cent of base salary.

There is more to this than banker-bashing. The governance code, and institutional investors’ efforts, are aimed at all companies, not just financial institutions. Amid a backlash over wage inequalities that helped to fuel the Brexit vote and the rise of populists elsewhere, it makes sense for companies to seek to keep top executives’ pension contributions, at least in percentage terms, in line with those of the wider workforce. Indeed, however much they may be in a global competition for talent, the prospect of a new Conservative prime minister, Boris Johnson, with populist tendencies — or a radical leftwing Labour government — should prompt UK companies to take a very close look at pay policies.

There is merit in Mr Winters’ argument that discussions on what constitutes acceptable levels for executive pay should take a broader and more holistic approach. Unless and until that happens, institutional investors and pay campaigners will continue to focus on where they might make a difference, one issue at a time.


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