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In the dispute that broke out last week between Standard Chartered CEO Bill Winters and some of his major investors, it's easy to blame.
Mr Winters should not have taken offense to the "immature" shareholders who had criticized the generosity of his pension arrangements by an amount of £ 474,000 a year.
And investors may have had to better understand his contractual rights to compensation. An American banker, whose American peers usually earn twice as much as he, could perhaps come to the conclusion that continuing to run a British bank is not worth the effort.
Anyway, the result is that a highly respected banker has been dragged into a growing quagmire. He joins Andrea Orcel, the former UBS banker who sues the so-called new employer Santander for 100 million euros, for breach of contract, and Credit Suisse, who lost last week a legal battle with the British government about a tax of the time of the financial crisis. on the bonuses.
Although Mr. Winters also indicated that he was ready to debate "the question of whether the compensation of management is too high," his defense of his generous pension made him appear as a resident of parallel universe. As this column pointed out a fortnight ago, it's not a good idea. The only winners are the activists of social injustice.
To the credit of institutional investors and UK policymakers, this is precisely the problem they have been trying to solve for about a year. Last year, when the corporate governance code was amended to urge companies to further align executive compensation structures with those of their staff, the Investment Association, the professional body of institutional shareholders, is in charge of the case. Executive contributions to the pension plan should not exceed 25%, said the IA, and should ultimately be aligned with the contribution rate of all staff.
We are far from this aspiration. According to a May report by LCP consultants, about half of the FTSE 100 employees contribute to their superintendents a pension contribution of more than 25% of their salary. Nearly nine out of ten of them receive a higher percentage of contribution than their staff.
AI leases HSBC and Aviva, which have taken decisive action to close the gap, and Morgan Sindall, a construction services company, which has capped its contributions to the pension plan at 10% of salary. equals the maximum available for others. Staff.
For the moment, this alignment is rare. Corporate compensation committees must accept a large part of it. As bonus systems were subjected to more and more constraints as a result of investor campaigns, they allowed pensions to inflate.
But part of the blame also lies with the government, and especially with former Chancellor George Osborne. Hospital doctors have complained in recent weeks about the pettiness and absurd complexity of the restructured pension tax break, limited to £ 40,000 of pension contributions, falling to £ 10,000 when you earn between $ 150,000 and £ 210,000. The lifetime limit on your retirement pension has also been reduced to barely £ 1 million.
Doctors are likely to be more sympathetic to the public, but a similar dynamic has emerged among senior executives. If you earn a few million a year and hope to maintain a similar standard of living after retirement, a pension allowance of £ 10,000 a year is quite inefficient.
But what looked like Mr. Osborne's political ploy to reduce tax donations and crack down on fat cats at the same time turned around dramatically.
Businesses started to pay cash benefits instead of pension contributions. While premiums were subject to more scrutiny, the amounts distributed to the CEOs in the form of cash instead of pensions averaged 25% according to the FTSE 100.
An actuary might note that 25% of salary is less than expected when compared to more traditional and more opaque defined benefit pensions, which entitle a typical beneficiary – from the Director General to a safety officer – to an equivalent income. two-thirds of the income. their salary at retirement. In today's world where life expectancy is longer and investment returns are lower, a contribution of 50% of salary would be required for this type of pension income.
Of course, companies could offset any feeling of unfairness by granting the same type of benefits to all staff. But the shareholders might have something to say about it.
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