How bosses decide to be paid is not just up to them. The shareholders, those lending money to the company and – not least – the rest of the workforce have a keen interest in making sure the company’s profits aren’t siphoned off into the bank accounts of those who have their fingers on the company’s pensions.
The checks and balances in place in a company to control the behaviour of the Board and senior management are collectively known as its Governance Structure and typically form some form of remuneration committee. Without a tough and effective “Remco“, investors will be reluctant to buy shares or lend a company money.
If you work for a company, you should also be interested in what’s going on with bosses pay. If you are in a Union, you should expect them to be keeping a close eye on the Company’s Governance , how the bosses are paid and whether their pay fairly reflects the value they are bringing to the Company.
To give shareholders, bondholders unions and employees any chance of understanding what is going on “upstairs”, the decisions taken by Remcos , Risk committees and the rest of the Corporate Governance apparatus need to be TRANSPARENT. That means understandable, open and honest.
Which is exactly what pensions aren’t – or at least that’s how they are perceived by the majority of people.
Here are some interesting facts culled from a recently published report by a bunch of pension experts drawn from a major legal firm, accountancy practice and insurance company.
The report suggests that by 2015 the relative proportion of the pay package taken by pensions is projected to fall to approximately 1/13 , 1/16 and 1/24 for the CEO, middle manager and average employee respectively.
The report goes on to point out
Given the prominence of incentives at the higher levels, it is surprising that the proportion is highest for CEOs. This reflects the high level of company contributions being provided at the top….the introduction by many firms of cash allowances to cover unapproved contributions has increased complexity.
The slightly disapproving tone might have been a little forthright if the complex strategies in question has not been devised by sad lawyers, accountants and insurers.
The statement that pension reward is perversely skewed to those who need replacement income least is a matter of rather greater concern to shareholders , bond holders and everyday employees than to the typical readers of this report who will be – surprise surprise, the lucky recipients of these souped up retirement plans.
The everyday worker in the UK is being asked to give up their defined benefit accrual or pay a lot more for it, they are being given miserable pay rises relative to inflation and have little to look forward to but the prospect of redundancy or more of the same.
We spend a lot of time talking about the trust employees have in their employers as a source of good quality pensions and generally impartial financial education. This is still true and it’s a good thing. But if employers are to continue to have the trust of their employers, they are going to have to address the imbalance between what they get and what they expect their workforce to get.
We cannot expect bosses to regulate themselves, they need to be kept in check by their Governance teams, most especially their Remuneration committees. More could and should be done at the Remco level to make sure that a situation where the CEO is getting twice the rate of pension accrual on his pay than the ordinary worker is “addressed and remedied”.