Firms using share options to get around 'fat-cat' pension curbs

Jun 29 2005 by Nic Paton Print This Article

Companies are looking at innovative ways of getting round curbs on excessive pensions due to come into force in the UK next year, it has emerged.

A study by recruitment group InterExec has found that nearly nine out of 10 organisations plan to give senior executives more share options to compensate for a legal cap on pension size.

From April next year there will be a £1.5 million lifetime limit put on the amount of money that can be saved into a pension.

A bulging pension pot has long been one of the perks of a top executive job, and any curb could have a serious effect, both on senior executives themselves and on the ability of organisations to recruit and retain top talent.

But with much of the Western economy facing a growing pensions' crisis, the size of pensions being awarded to top executives, particularly if they are not felt to have performed particularly well, is becoming an increasingly thorny issue.

Earlier this year a study by consultancy Independent Remuneration Solutions found that CEO pay was being pushed by bonuses, benefits packages and huge pension payments, rather than simply basic salary levels.

The study of chief executives in Britain's 10 biggest quoted companies found that bonus and pension payments now dwarfed basic salaries, with the average basic salary of £968,000 now accounting on average for just 16 per cent of total pay.

The InterExec survey, of more than 600 head-hunters, found that almost a quarter of firms had already changed the way they pay their senior executives to reflect the pension cap, and it was senior executives that were calling for the changes.

"Our findings would indicate that senior executives are demanding remuneration packages that provide alternative post retirement income," said InterExec chief executive Kit Scott-Brown.

"Most are looking to more generous share option packages to compensate for the pensions cap, citing the two fold advantage of providing alternative remuneration and being able to further lock in senior executives," he added.