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Investors to focus on boardroom diversity and pensions

Institutional investors will be made aware of whether the companies that they invest in are on course to meet boardroom diversity targets, and whether they are paying excessive pension contributions to executive directors.04 Mar 2019

'Red top' and 'amber top' warnings will be added to company profiles issued by the Institutional Voting Information Service (IVIS) before this year's corporate annual general meetings (AGMs) get underway, the Investment Association (IA) has announced. IVIS provides corporate governance research to IA members to assist their voting decisions during AGM season.

"The IA's remuneration principles set out shareholder expectations on executive pension contributions and our members have been clear this is an issue of fairness and pension contributions should be aligned with the majority of the workforce," said IA director Andrew Ninian. "The new IVIS approach reflects our members' view that newly appointed directors should receive a pension contribution equal to that of the majority of the workforce."

"Similarly, the Hampton-Alexander review has set the roadmap to deliver greater diversity in the boardroom, but a frustratingly high number of companies are still failing to follow it. Our strengthened IVIS approach reflects the fact investors want to see companies do more than take a tokenistic step of appointing a single woman to their board and consider that job done," he said.

An IVIS 'red top' warning indicates a company where there are issues of significant and serious concern to shareholders. It does not necessarily mean that shareholders will vote against that company's resolutions and remuneration reports. An 'amber top' is IVIS' second-highest level of warning.

IVIS intends to 'red-top' companies which pay newly-appointed directors pension contributions which are not in line with the majority of their employees, and which do not explicitly state in a new remuneration policy that any new executive director appointee will have their pension contributions set in line with the majority of the workforce. It will 'amber top' companies that pay pension contributions of 25% of salary or more to existing executive directors.

Employment law expert Helen Corden of Pinsent Masons, the law firm behind Out-Law.com, said: "This is a further example of the pressure being placed on companies to ensure that their boards and senior executive teams are more gender diverse. Those companies not meeting the targets set will be under increasing pressure to put in place further action plans for improving diversity and explaining why they have been unable to appoint more women to the board."

"This, together with the second round of gender pay gap reporting, the deadline for which is 4 April, will continue to shine the spotlight on why more cannot be done to improve diversity at the highest level within companies," said Corden.

The announcement follows the latest update to the IA's Principles of Remuneration, published in November 2018, which highlighted high pension contributions as an area of concern. The principles, which set out investor expectations on executive pay, now warn against the use of pension-related payments as a means of increasing total remuneration, and state that pension provision for executive directors "should be in line with the general approach to the employees as a whole". The UK Corporate Governance Code also makes reference to pensions, stating that contribution rates should be "aligned with those available to the workforce".

IVIS also intends to 'red top' companies on the FTSE 350 index which have no women, or only one woman, on their boards, except in cases where the board is so small that the company has met the 33% diversity target set by the Hampton-Alexander review of gender diversity among executives. It will 'amber top' companies where there is more than one woman on the board, but where less than 25% of the board is female, as these companies are unlikely to meet the 33% Hampton-Alexander target by 2020.