In the UK, aligning executives’ pension contribution rate with that of employees has been a trend over the last several years, as it is a recommendation of the updated UK Corporate Governance Code.
The ESG analyst, GIA, and other portfolio managers met with the chair of the remuneration committee at its London headquarters to discuss the remuneration policy, which had attracted scrutiny, among other ESG issues. In the following months, an equity portfolio manager hosted a call with the CEO to discuss how the company’s country of domicile aligns with the regions in which it does business.
We expressed our view that the remuneration committee should make the necessary adjustments to the pension contribution rate for incumbent executives, as it had already done for new executives. We were reassured that the change would not pose any talent retention risk. We also discussed the challenges with selecting the company’s peer group to measure relative total shareholder return in the long-term plan, given the bank’s focus on its business in Asia. The company is domiciled and regulated in the UK but generates the majority of its revenue from business in Asia; just 5% comes from the UK. This distinguishes the company from other banks in the UK, and, in our view, makes local regulations less applicable, when compared with UK peers. We encouraged the company to explore a change of domicile to reflect its geographic footprint.
We are pleased that the company embraced shareholder feedback regarding pension benefits for executives. We will monitor for improvements to the overall pay structure and the board’s willingness to hold management accountable. The question of domicile and headquarters is a complex one, with far-reaching implications on the company’s approach to regulation, talent, board composition, and shareholder dialogue, among others. This issue is not unique to this company. We intend to spend more time exploring innovative solutions to help organizations arrive at outcomes in the best interests of shareholders, who are often our clients.
- Executive remuneration and country of domicile
In the ensuing months, the board announced a reduction in the pension contribution for incumbent executives to 10% of total salary, in line with all employees. We supported the 2020 remuneration proposal, which received 97% support from shareholders.