Imbalance has put the future of capitalism up for debate. Big investors must be seen to be taking action. High pay must be cut. But how?
Executive pensions are a good place to start, as concessions involving the bosses of UK banks such as Lloyds demonstrate. The ratio of chief executive to employee salary is altered by the sector. it is unfair that CEOs get huge pension contributions and employees do not.
For example, Lloyds boss António Horta-Osório got a pension allowance equivalent to an 46 per cent of salary in 2018. The bank plans to harmonize contributions at 15 per cent. The change will cost Lloyds £20m a year and Mr Horta-Osório around £228,000 in lost contributions, based on his 2019 salary.
Lloyds’ move follows reforms to the UK governance code last year. Between 2017 and 2018, the value of the median contribution for new executive hires in the FTSE 100 dropped from 25 per cent to 15 per cent, according to Deloitte data. Convincing incumbent CEOs to take a pensions cut has proved harder. The average amount remained stuck at 25 per cent.
That will change as investors crank up the pressure. Companies with big pension perks are making them less perky. British Land’s boss Chris Grigg, who got a 35 per cent allowance in 2018, is taking a 5 percentage point cut each year until he is down to the 15 per cent. HSBC executives went from 30 per cent to 10 per cent. Standard Chartered will halve boss Bill Winters’ pension allowance from next year, although alignment with the workforce is achieved only by sleight of metric.
Some bosses see the struggle of the City to tame their pay as another black mark against the UK as a listing venue. Businesses as dependent on the local economy as Lloyds have little choice. CEO remuneration may matter little as an operating expense. But the social consent all businesses need will increasingly depend on pay falling.
Shadrach is a Trending Journalist. His first job was as a newsreader and journalist at an award winning magazine. He spends most of his time scouring the internet for the hottest topics to share with his readers.