Major banks accused of ‘pensions racket’ for senior executives

Without the executives who sit at the head of the boardroom tables across the City of London and Canary Wharf, the upper echelons of the electronic trading and financial markets business would be severely compromised.

Whilst development is in place to automate vast areas of operational resources in institutional trading, the corporate hierarchy is still very important when it comes to driving the top tier companies upon which our industry relies for bank liquidity and in some cases, execution technology.

Thus, it could be argued that the vast remuneration packages awarded to senior executives of the world’s largest banks is jusified, as it ensures that the right level of expertise is acquired and maintained in order to comprehensively oversee the operations of important institutions on which we rely.

On the other hand, commercial misbehavior which has dented the image of the previously pin-stripe imaged City institutions, cost shareholders and taxpayers millions in fines and bailouts, and losses have blighted some of the top firms from Credit Suisse to Barclays for several years, hence human error is certainly not a factor that has yet been eliminated.

Bearing this in mind, where does one draw the line?

Conservative capitalist sensibility would usually profess that paying proper salaries and even more importantly promising gilt-edged pensions for senior executives in charge of the higher end of such an important business as London’s capital markets sector encourages longevity, diligence and stability, ensures less temptation to leave and counters any temptation for skilled professionals to succumb to the temptation of offers by competitors.

That may have been the case five years ago and the only dissenters would be unwashed socialists who think that the world owes them a living and that properly earned wealth should be distributed to those who are incapable of, or not willing to skill up and earn it themselves, instead committing their daily efforts to the growth of facial topiary and armchair-based political radicalism.

Not these days though. The dissent today is not coming from the unemployable members of the ‘Occupy’ movement, nor is it coming from hemp toting Guardian readers.

Quite the opposite, in fact, as it is indeed shareholders of the institutions themselves who are dissatisfied with remuneration packages of senior executives, notably the pension contributions being paid by the company into corporate pension plans for those in top level positions at some of Britain’s largest banks.

Admittedly, it is not just banks that are on the list of companies highlighted this week by their shareholders for paying vast and disproportionate contributions into executive pension schemes, but it is the large FX dealing banks that are at the very top of the list in terms of vast contributions and high percentage of amount paid by the company compared to private contributions.

Two examples of this are Lloyds Bank, which paid CEO Antonio Horta-Osorlo 46% in employer contributions, putting in £565,000 last year, whereas Bill Winters of Standard Chartered, a massive global dealer in Tier 1 FX in Britain and Asia, received 40% employers contributions into his company pension plan, equating to a monetary value of £460,000.

Other industry sectors accused by their shareholders of massively exceeding pension contribution percentages include pharmaceuticals and fashion, however they were far below that of the banks in this regard.

The main concern about this is that the payments are done through special schemes not open to ordinary staff, who must settle for a much lower rate of support than the top executives, and instead of having to lock their savings away for years in a retirement scheme, senior executives just get given a lump cash sum on top of their annual salary.

The Investment Association – which represents big City shareholders – is targeting the practice and has already written to the worst culprits, urging them to treat senior management in the same way as non-executive employees. The national UK average contribution by a company into a pension scheme for its employees is 13% of salary which is only really ever effected if the employee puts in 5% of said employee’s own salary, thus the disparity is clear.

In the letter to some of the largest listed firms, the IA’s corporate governance chief Andrew Ninian said: ‘Pension contribution rates should be aligned with those available to the workforce. “The pension contributions for current executive directors should be reduced over time to equal the rate received by the majority of the workforce.”

Sacha Sadan, head of corporate governance at £1 trillion fund firm Legal & General Investment Management, said that from next year they will start to vote against sky-high pension payments. Among the worst culprits is Lloyds, where chief executive Antonio Horta-Osorio gets a pension contribution of £565,000, equal to 46 per cent of his £1.2million annual salary. In total, he earned £6.4million in 2017 when pension contributions, base pay, bonuses and benefits were all taken into account.

It certainly comes to something when capitalist shareholders and business organizations begin to react with the type of vitriol usually reserved for extreme left wing trade unions or anti-capitalist organizations.

Member of Parliament John Mann, a member of the Treasury committee, who represents the socialist Labour party, said: “These huge pension payments are shameful and suggest that bosses are topping up their already massive salaries through the back door. It is completely unacceptable for any chief executive to get much better retirement pay than their ordinary workers.”

If you can’t trust the way a company is structured, then this does not bode well for trusting its liquidity or pricing. Who said public listing equals transparency?