Executive pensions: how Sir Fred Goodwin’s gold-plated package fits in
Former RBS boss’s £693,000 a year doesn’t make the executive pensions top 10
- guardian.co.uk, Friday 27 February 2009 12.44 GMT
It is not just Sir Fred Goodwin who qualifies for a large pension payout. Executive pensions have long been insulated from the ups and downs of the stockmarket. While most employees’ pensions are now linked to stockmarket returns, directors’ retirement packages are still related to final salary and are often given an additional boost by the company.
In the Guardian’s pay survey last year, Larry Fish, Royal Bank of Scotland‘s US boss, came top of the executive pensions list, with Goodwin appearing 12th.
Fish, who retires in May from his non-executive role as chairman of RBS’s Citizens bank, has accrued a pension worth £1,036,218 a year. He joins former BP chief executive Lord Browne, who saw his pension entitlement break the £1m mark in the 2006 survey.
Todd Stitzer, the Cadbury Schweppes boss, can look forward to a minimum annual pension of £882,000, while Jeroen van der Veer, the chief executive of Shell, who retires this year, has built up an entitlement of £828,923 a year.
The survey calculates pension accrued up to the beginning of 2007.
Van der Veer is 62, but Stitzer, at 56, has some time to add to his pension. Like most executives, both benefit from gold-plated schemes that guarantee to pay two-thirds of their final salary when they retire.
A study by the TUC has put the average retirement payout for FTSE 100 executives at more than £200,000 a year, mainly thanks to their membership of final-salary schemes.
The union body pointed out that bosses have, in recent years, created an increasingly wide divide between the boardroom and the shop floor, and not just in the scale of their pension payouts.
While executive pensions are insulated from the ravages of the credit crunch through their link to their final salary, employees’ pensions, in the main, are not. The majority of workers must contribute to pensions that depend on the stockmarket for their growth rather than on their length of service and final pay cheque.
Pension benefits are also skewed towards directors. In most instances, bosses accrue their pension rights in half the time it takes a worker in a guaranteed final-salary scheme. It means a director need only work for a company for 20 years to gain a retirement income of two-thirds of salary, compared with 40 years for a worker.
Also, most workers have seen defined-benefit schemes closed down and face cuts of between a half and a third in employer contributions. A dwindling band of their counterparts have pensions linked to final salaries.
The money-purchase arrangements that are replacing final-salary schemes pay about 20% of final salary, compared with the 66% for guaranteed schemes, according to a 2008 study by Hargreaves Lansdown.
Some firms, including HSBC and the advertising group WPP, have moved away from guaranteeing a two-thirds pension to their directors, but the Guardian study shows a divide remains at most firms, including HSBC and WPP.
At WPP, Sir Martin Sorrell can claim to be a member of a similar scheme to the firm’s workers, but a £400,000 donation to his pension pot in 2007 is far in excess of the payments to staff.
At the mining company Xstrata, executives Mick Davis and Trevor Reid are playing catch-up. Davis, the chief executive, put £1.6m into his pension in 2007, while Reid, the company’s finance director, was given a £720,366 boost to his retirement fund.
Many executives, like Goodwin, are also entitled to retire earlier on full pension than staff.
The only woman to enter the top 20 pensions list was Linda Cook, Shell’s gas and power boss. Ranked number 83 on the Forbes list of the world’s most powerful women recently, she is under 50 but already looking forward to a pension of £513,057.