In an op-ed at the Guardian on Saturday, UK Prime Minister Theresa May pledged that her government would take further action this year to rein in what she described as abusive behavior by a minority of British companies that fail to safeguard their employees’ pensions:
In the spring, we will set out new tough new rules for executives who try to line their own pockets by putting their workers’ pensions at risk – an unacceptable abuse that we will end. By this time next year, all listed companies will have to reveal the pay ratio between bosses and workers. Companies will also have to explain how they take into account their employees’ interests at board level, giving unscrupulous employers nowhere to hide.
And, for the first time, businesses will have to demonstrate that they have taken into account the long-term consequences of their decisions. Too often, we’ve seen top executives reaping big bonuses for recklessly putting short-term profit ahead of long-term success. Our best businesses know that is not a responsible way to run a company and those who do so will be forced to explain themselves.
May’s announcement came days after Carillion, the UK’s second-largest construction company, went into compulsory liquidation. The collapse of the company puts as many as 43,000 jobs at risk worldwide, including 19,500 in the UK, and threatens to leave as many as 30,000 subcontractors unpaid. Carillion’s insolvency will also mean delays or disruptions in a number of major public-private partnerships in which the firm is involved.
To May’s point, the bankrupt construction firm’s pension obligations are expected to rise to over £800 million, which the Pension Protection Fund must now cover, which means many employees’ pensions will be smaller than they expected. According to the Guardian, 28,000 members of Carillion’s 13 pension schemes are looking at cuts. Executives’ bonuses, however, are protected:
With its pension problems mounting, Carillion controversially changed the rules in 2016 to prevent any clawing back of executives’ bonuses should the business eventually collapse.
The government has come under pressure to limit the damage to pension funds from reckless employers since the collapse in 2016 of BHS, the retailer that went into administration with a large black hole in its final salary retirement scheme – and despite paying hundreds of millions of pounds in dividends to its owner Sir Philip Green’s wife, Tina. A consultation green paper last year signalled that ministers planned to get tough with employers who failed to tackle large deficits in their pension funds.
The “tough new rules” May is proposing would entail giving the pensions regulator new powers to levy hefty fines on company directors and executives when they put the solvency of their employees’ pensions at risk to serve their own financial interests:
Among radical potential measures that have been discussed in Whitehall are plans that would leave individual executives personally liable for hefty financial punishments if their companies’ pension schemes collapse. One proposal is for regulators to be empowered to claw back executives’ bonuses after a company and its pension system go to the wall.
However, these proposals would face significant opposition within May’s Conservative party as well as from business lobbying groups and the London financial sector. For these reasons, Steve Webb, a former pensions minister and now director of policy at the pensions company Royal London, told the Guardian that he expected “any actual action to be some years away and reserved only for the most extreme cases.”