The Investment Association will name and shame companies that pay high pension contributions to executives but fail to appoint enough women to their board.
The IA's Institutional Voting Information Service will 'red-top' companies who pay newly-appointed directors pension contributions which are not in line with the majority of their employees. This will apply to companies with year-ends on or after 31 December 2018.
A red-top represents the highest level of warning IVIS issues and is reserved for companies where shareholders should have the most significant and serious concerns.
Andrew Ninian, director of stewardship and corporate governance at the Investment Association, said: "The IA’s remuneration principles set out shareholder expectations on executive pension contributions and our members have been clear this is an issue of fairness and pension contributions should be aligned with the majority of the workforce."
In November 2018, the IA published its principles of remuneration which set out investor expectations on executive pay, and highlighted high pension contributions as a key concern.
Its principles state pension-related payments should not be used as a mechanism for increasing total remuneration, and pension contribution rates for executives should be aligned with those of the workforce. The IA said investors expected new executive directors or any director changing role to be appointed on this level of pension contribution.
Any new executive director appointee from March 1, 2019 whose pension contribution is above the level of the majority of the workforce will result in a red top on the remuneration report.
Any existing executive director receiving a pension contribution of 25 per cent of salary or more will be ‘amber topped’ on the remuneration policy and report. An amber-top is IVIS’ second highest warning.
IVIS will also red-top FTSE 350 companies that have no or only one woman on their board, except where the 33 per cent Hampton-Alexander target has been met.
In February 2016, the government appointed Sir Philip Hampton and the late Dame Helen Alexander to chair an independent review to ensure women at the top of business are recognised. It recommended that 33 per cent of a FTSE company’s board should be represented by women by 2020.
IVIS will highlight any FTSE 350 company and FTSE Small Cap company where less than 25 per cent of the board are women.
Mr Ninian added while the Hampton-Alexander review has set the roadmap to deliver greater diversity in the boardroom, a frustratingly high number of companies are still failing to follow it.
"Our strengthened IVIS approach reflects the fact investors want to see companies do more than take a tokenistic step of appointing a single woman to their board and consider that job done. Evidence clearly shows that more diverse boardrooms make better decisions. Investors want to see greater diversity in the companies they invest in to ensure our savers and investors are getting the best returns possible," he said.
IVIS, which has 250 members managing £7.7tn of assets, provides corporate governance information to shareholders to aid their AGM voting decisions.