Demands for diversity complicates executive compensation packages, says leading recruiter
18 August 2014
Executives’ demand for more diversity in their personal investments adds “a level of complexity” to the total compensation package that will need to be accounted for in the negotiation of offers, said a leading recruiter.
Mon, 18 Aug 2014 | By Nicola Sullivan
Executives’ demand for more diversity in their personal investments adds “a level of complexity” to the total compensation package that will need to be accounted for in the negotiation of offers, said a leading recruiter.
Commenting on research from Income Data Services (IDS), which found that FTSE 100 directors received cash worth an average of 27% of their salary in place of pensions last year, Simon Nolan, head of practice (consumer) at Page Executive, told Recruiter: “Over recent years executive remuneration has become increasingly complex. Against ever-changing legislation and complexity surrounding tax arrangements, directors are increasingly looking at other ways to manage their financial affairs in a more tax efficient manner.
“Although not as common for mid and low-level directors, the chances are that any senior director will have already maxed out their personal pensions allowance.”
IDS said that these sorts of cash payments, which in 2013 reached an average of £225,580 for FTSE 100 executives, are paid instead of a pension contribution when the total retirement pot has reached its tax beneficial limit. In April the lifetime allowance for a personal pension was lowered to £1.25m and the government reduced the amount of pension savings that benefits from tax relief, from £50k to £40k.
In a statement, Steve Tatton, editor of IDS’s ‘Executive Compensation Review’, said: “The benefit of receiving pension cash supplements is that directors are then free to spend or invest the cash as they see fit.
“Many directors are opting to take cash in place of pension contributions because of tighter rules on pensions. In the top companies these cash supplements can be substantial.”
IDS’s research also found that stand-alone direct contribution (DC) and direct benefit (DB) pension schemes are no longer in favour with directors of FTSE 100 companies. Consequently directors’ pension plans now consist of a mix of arrangements rather than a single scheme with 55% of FTSE 100 directors using a combination of DC and DB schemes and cash supplements.
The next most popular arrangement, with a quarter (24.7%) of FTSE 100 directors signed up, is a combination of DC schemes and cash supplements.
“Many directors of FTSE 100 companies are opting for a combination of pension schemes. The schemes can be complex and are often tailored to suit the requirements of the individual,” said Tatton.
He added: “The new restriction on annual pension contributions has meant that directors are more willing to use a mixture of pension schemes. Consequently directors are able to make the most out of tax reliefs and receive cash in hand, which gives them more freedom over their pension investments.”
Commenting on research from Income Data Services (IDS), which found that FTSE 100 directors received cash worth an average of 27% of their salary in place of pensions last year, Simon Nolan, head of practice (consumer) at Page Executive, told Recruiter: “Over recent years executive remuneration has become increasingly complex. Against ever-changing legislation and complexity surrounding tax arrangements, directors are increasingly looking at other ways to manage their financial affairs in a more tax efficient manner.
“Although not as common for mid and low-level directors, the chances are that any senior director will have already maxed out their personal pensions allowance.”
IDS said that these sorts of cash payments, which in 2013 reached an average of £225,580 for FTSE 100 executives, are paid instead of a pension contribution when the total retirement pot has reached its tax beneficial limit. In April the lifetime allowance for a personal pension was lowered to £1.25m and the government reduced the amount of pension savings that benefits from tax relief, from £50k to £40k.
In a statement, Steve Tatton, editor of IDS’s ‘Executive Compensation Review’, said: “The benefit of receiving pension cash supplements is that directors are then free to spend or invest the cash as they see fit.
“Many directors are opting to take cash in place of pension contributions because of tighter rules on pensions. In the top companies these cash supplements can be substantial.”
IDS’s research also found that stand-alone direct contribution (DC) and direct benefit (DB) pension schemes are no longer in favour with directors of FTSE 100 companies. Consequently directors’ pension plans now consist of a mix of arrangements rather than a single scheme with 55% of FTSE 100 directors using a combination of DC and DB schemes and cash supplements.
The next most popular arrangement, with a quarter (24.7%) of FTSE 100 directors signed up, is a combination of DC schemes and cash supplements.
“Many directors of FTSE 100 companies are opting for a combination of pension schemes. The schemes can be complex and are often tailored to suit the requirements of the individual,” said Tatton.
He added: “The new restriction on annual pension contributions has meant that directors are more willing to use a mixture of pension schemes. Consequently directors are able to make the most out of tax reliefs and receive cash in hand, which gives them more freedom over their pension investments.”
