Appeal for greater transparency over directors' pensions

The National Association of Pension Funds (NAPF) and the Local Authority Pension Fund Forum (LAPFF), whose members hold 800bn and 85bn of assets respectively, have written to the chairman of every company in the FTSE 350.

The institutional investors are calling for companies to be more upfront with shareholders about the pension perks of their top executives.

They warned that a lack of transparency around boardroom pensions is an obstacle to shareholder scrutiny, and that generous pensions risk rewarding bosses for poor performance.

The letter said that while firms already offer some information about boardroom pensions, they should volunteer more so that shareholders can judge total pay policies more effectively.

The institutional investors pointed out that pensions are not linked to performance in the same way that annual pay, share options or bonuses are.

They warned that the generous pension terms found in many boardrooms could reward directors in their retirement despite failure in the job.

The letter does not go so far as to call for directors' pensions to be cut, but argues that more clarity is needed so that shareholders can make a fully informed decision. It also warns that boardroom pensions which have significantly higher accrual or contribution rates than those available to other employees could be seen as unfair if not fully explained.

Joanne Segars, chief executive of NAPF, said: "There should be no reward for failure, and pensions must be scrutinised as a key part of the overall pay package. Pensions are not usually linked to performance and so must not become a back door to increasing directors' pay.

"Where boardroom pensions are more generous than those on the shop floor, investors may have questions about fairness that need to be answered.

"Shareholders need to see what's going on under the bonnet if they're to hold management to account. We hope that companies heed our call for greater transparency."

Ian Greenwood, chair of the LAPFF, said: "The most important thing is transparency. At present it sometimes isn't possible for investors to take an informed view on directors' pensions arrangements because of the lack of clarity in some remuneration reports.

"If companies set out clearly what retirement provision is in place for directors, this will greatly aid shareholder understanding. Therefore we hope companies will respond positively to this initiative."