Let’s get aligned: Investors to target directors’ pensions and diversity

​Overview of the Investment Association's recent announcement about the 2019 AGM season.

A recent announcement by the Investment Association (IA) indicates some ratcheting up of investor pressure on directors’ pensions and diversity in the 2019 AGM season.


Tucked away in the 2018 UK Corporate Governance Code is: “The pension contribution rates for executive directors, or payments in lieu, should be aligned with those available to the workforce.” (paragraph 38). This Code applies to financial years beginning on or after 01 January 2019.

On 22 November 2019, the IA published its updated Principles of Remuneration and a letter to the Remuneration Committee Chairs of FTSE 350 companies. This notes the statement in the Code that pension contribution rates should be aligned with those available to the workforce and states that “IA members consider this to be the contribution rate given to the majority of the company’s workforce. Investors expect new executive directors and directors changing roles to be appointed on this pension contribution level. The pension contributions for current executive directors should be reduced over time to equal the rate received by the majority of the workforce. Shareholders expect that no compensation will be awarded for this change.”

The IA have now said that its Institutional Voting Information Service (IVIS), which provides corporate governance research to shareholders to aid their voting decisions during the AGM season, will "red-top" companies who pay newly-appointed directors pension contributions which are not in line with the majority of their employees. A red-top represents the highest level of warning IVIS issues and is reserved for companies where shareholders should have the most significant and serious concerns.

The IA is clearly targeting new directors as existing directors’ pension contributions will already have been set. But companies should take note that the IA is also expecting pension contributions for current executive directors to be reduced over time to equal the rate received by the majority of the workforce.


The IA’s announcement also focuses on diversity on boards and states that IVIS will:

  • "red top" companies that have no women or only one woman on their board,
  • "amber-top" (the second highest warning) companies not on course to meet 33% of women on their board by 2020 (as required by the Hampton-Alexander review), and
  • highlight any board with women representing 25% or less.

This approach reflects the fact that investors want to see companies do more than take a tokenistic step of appointing a single woman to their board.

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