What’s better than getting paid millions of dollars for running a multinational company? Being paid not to run it any more. That’s still much easier than it sounds.

Take Tom Enders, who stepped down as Airbus SE chief executive officer this week. He’s leaving with a pension that could cost the company 26 million euros ($29 million). Ex-Daimler AG CEO Dieter Zetsche will receive an annual pension of more than one million euros in his retirement. At Volkswagen AG, longstanding executives are entitled to a pension of up to 70 per cent of their base pay.(4)

Generous pension payouts were once an opaque way for compensation committees to pad compensation without drawing much scrutiny. Now, investors and governments are – rightly, in my view – starting to challenge them. It’s hard to defend the generous packages enjoyed by senior executives as the wages and pensions of rank-and-file workers have been squeezed. The disparity risks fueling the growing populist backlash against free markets.

Boards should reward executives for good performance, not rent-seeking. More bosses should consider following the example of Danone SA’s CEO and forgo these kind of payouts. If they don’t, they need to brace for the inevitable backlash.

In Britain, generous pensions tied to a worker’s final salary are largely a relic of the past. In the private sector, staff can count themselves very lucky if their company contributes 10 percent of salary towards their retirement. In the U.S. almost 30 percent of U.S. households aged 55 and older have no retirement savings and no pension, my colleague Nir Kaissar reminded us this week.

Yet gold-plated pensions for increasingly well-paid executives remain commonplace. International comparisons aren’t always that meaningful due to differences in the way remuneration is structured. But as rule of thumb, big U.K. companies typically contribute 25 percent of salary toward a senior executive’s pension, while on the continent the proportion is often higher still.(11)

Amid the fuss that Enders’s pension triggered and Renault’s decision not to pay a 765,000-euro annual pension to embattled former boss Carlos Ghosn, the French government has called for executive pensions to be capped at 30 percent of pay. In Germany, pressure is building for a cap there, too. 

In the U.K., the subject has become even more controversial. The reason is simple: the updated U.K. corporate governance code now requires that executive pension contribution rates are “aligned with those available to the workforce.”

With shareholder meeting season fast approaching, the Investment Association, which represents asset managers, has promised to call out companies that don’t follow the code for new hires, and to highlight companies that continue to offer existing directors a pension contribution of 25 percent or more. Proxy adviser Glass Lewis is also urging remuneration committees to show more restraint.

Hoping to avoid adverse publicity, U.K. companies are scrambling to adjust their pay practices. After shareholder pressure, HSBC Holdings Plc cut all executives’ pension allowances from 30 percent to 10 percent of salary, for example.

Not all boards have gone that far. Lloyds Banking Group Plc has cut the cash that CEO Antonio Horta-Osorio receives in place of a pension from 46 percent of his base salary to 33 percent – a level that labor union Affinity complained was still sufficient “to buy a Ferrari every year.”

As pressure for reform builds, investors should be alert to companies playing smoke and mirrors, something Standard Chartered Plc was accused of recently. When the bank cut CEO Bill Winters’s pension to 20 percent from 40 percent of salary, it included a share payment in the calculation that left entitlement broadly unchanged.

The bank isn’t the only company to be generous in its calculations. Siemens AG is one of several German companies that calculate executive pensions as a percentage of salary – and target bonus. Hence Joe Kaeser received a 1.2 million-euro contribution to his pension last year, equivalent to 56 percent of his base salary.(8) In France, Peugeot SA’s plan is even more peculiar. CEO Carlos Tavares’s pension is calculated as 25 percent of his salary and the bonus achieved. Due to Peugeot’s good performance last year, Tavares received almost 1 million euros towards his pension, or two-thirds of just his base salary.(6) 

Of course, a pension tends to be only a small part of a CEO’s total remuneration. Naturally, investors were more vexed about the more than 80 million pounds of long-term incentives that homebuilder Persimmon Plc paid to then boss Jeff Fairburn in 2017-2018 than the 24 percent of base salary he received as a pension supplement (Though this was almost three times what regular employees received as a pension match).(7)

Yet as Fairburn showed, executives have far more opportunity to build up retirement wealth than their staff. Most don’t need a large pension on top, but they’ll take one if it’s going.

Altering existing contractual commitments is difficult, so it will be up to individual executives to take the initiative. So three cheers for Danone’s Emmanuel Faber. In January, the boss of the French dairy giant voluntarily gave up his right to a 1.2 million-euro pension annuity. With luck, others will be inspired by his restraint. But don’t count on it.

(1) VW board members appointed after 2017 receive 40 percent of their fixed pay.

(2) Though for tax efficiency reasons executives increasingly take cash instead.

(3) The Siemens executive pension plan is not performance-related. It is calculated as 28 percent of salary and the target amount of the bonus. The bonus target amount is 100 percent of base pay.

(4) This is subject to tax of course

(5) From 2020 Persimmon plans to reduce new boss Dave Jenkinson’s pension supplement so it is in line with the wider workforce.

To contact the author of this story: Chris Bryant at cbryant32@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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