Like death and taxes, another certainty in life is the ever increasing responsibilities and management which the trustees of a pension scheme face.
The days of turning up to four or less trustee meetings a year, enjoying a decent lunch (with wine) at the smart offices of an investment manager are now history, and no bad thing either. Trustees now have to prepare for meetings where the number of pages, real or virtual, number around a couple of hundred, deal with an increasing amount of business in increasingly specialist committees, investment, employer covenant, administration, risk, finance for example. And then not forgetting the management of the scheme advisers – are they being proactive without acting like they are out to generate more fees and are they answering the question asked, not the one they would like to answer. In short, are they adding value?
On top of this, are the trustees fulfilling their fiduciary duty to the scheme membership? Are members receiving a good service from the administrators, are the number of complaints on the rise, is there some commonality in the nature of the complaints? The Trustees need to manage this. The list goes on, the Pensions Regulator guides and codes, de-risking strategies, communications, trustee training and negotiations with the employer……
Many trustees are directors of a limited company, although there are some who are not. There are good legal reasons for this, which I’ll leave to the lawyers to explain. So the question is, should trustees be paid like directors since trustees (whether legally directors or not) act in a way many executive directors of companies would recognise as being part of their job description. In these days of every closer review of executive remuneration, what, if anything, is an appropriate rate of remuneration for trustees?
Company appointed trustees
For existing employees who act as a pension scheme trustee, including the added responsibilities of acting as Chair of the Board or a Committee, there is a strong argument that they are already being paid for their trustee role. This however is only true if the employer recognises this through the annual development review the time the individual spends on pension trustee responsibilities in addition to their day job. We have seen examples of best practice where becoming a trustee is encouraged as part of the overall development of the individual. Equally, we have seen individuals being subtly, or sometimes not so subtly, advised that trusteeship and career development are not always compatible. It’s very much a company culture issue.
Member nominated trustees
Rather like solving a problem like Maria, the tricky part of this question is what do you do about member nominated trustees? (MNT’s)
There are MNT’s who are employees, pensioners and occasionally deferred members. Sometimes they are elected; sometimes they are nominated, either by the membership or a pension’s advisory committee and go through a job interview process, sometimes appointed by their union. All of this makes a consistent approach to the question of payment at best difficult and at worst impossible.
For the employees of the company, many of the issues arising from the appointment of a company nominated trustee apply. There is the added complication that the MNT’s line manager needs to be supportive of the time off to attend meetings and receive training that is a requirement of a pension trustee’s role. The attitude of ‘they are never here, always at meetings’ needs to be balanced against the benefits which being a trustee brings, including transferrable skills to the individuals job role.
Pensioner trustees present a different set of issues to be resolved. The common perception that they have the time to perform the role is balanced against that they often have other interests which demand their input. Some trustee boards ensure that pensioner MNT’s have the necessary IT kit, such as internet access or iPad’s, to view papers, email correspondence and the like. Travel and reasonable out of pocket expenses are met. Some are paid a stipend and many are not.
Deferred member trustees share many of the characteristics of pensioner MNT’s except that the deferred member may be working for a competitor (and acting as a trustee only after the conflicts of interests issues have been resolved).
Since neither pensioners or deferred members are employees of the company, there are also the practical implications of paying these individuals through a company payroll with all of the added complications of HMRC Real Time Information requirements. The Trustee Board may need to set up its own payroll to get round this.
Trustee job profile
Just as there are no two pension schemes exactly alike, no two individual trustees perform the same role. In larger schemes, trustees may be required to sit on at least one other committee (rotating around them to gain wider experience) and in smaller schemes all of the trustee business is handled at the board meeting and there are no separate committees.
Rather like in the world outside pensions, the same job role has different responsibilities and therefore potential remuneration levels with trustee boards. What is needed therefore is a carefully constructed job profile which identifies the skill sets required (for example, negotiation, the ability to absorb complex employer covenant information) in order that the individual interested in standing for the role knows what they are letting themselves in for and for a level of remuneration to be agreed. This has the added advantage of clearly setting out what is expected of potential candidates, for example completing the Pensions Regulators Trustee Toolkit with six months of their appointment) and can stop those who maybe see the role in a different way from applying.
This leads neatly to identifying the individual trustee’s qualification and experience required to fulfil the role which then needs to be mapped to the job profile. Deep experience of one particular area, for example finance, does not necessarily trump an individual who has an administration background. Like a company board of directors, the trustees should be a mix of different skill sets in order to be greater than the sum of its parts.
Job performance measurement
If being a trustee is a job, there needs to be an annual assessment of both the whole Board and the individual trustee’s performance. To do this means having to spend time on developing transparent objectives in order that performance can be assessed. Like any good development process, there should not be surprises at review time. On-going feedback is critical if performance objectives are to be met.
Best practice is get the key stakeholders, the scheme sponsor and the trustees, round a table to look forward, develop and prioritise scheme objectives and record these where they are accessible to all parties. At this time, the metrics of the measurement process need to be agreed or else the process will get bogged down at the subsequent review in the meaning of the words.
If you are serious that being a trustee is a real job, carrying real responsibilities then some payment may be appropriate. The downside is that to do this properly carries all of the HR management involved with employing an individual in the workplace. This includes agreeing how much remuneration is appropriate for the role and measuring the individual’s performance with all that is involved if performance is not up to standard.
The upside is that trustees may be more accountable and provide a better outcome not only for the scheme sponsor but for the scheme members as well.
At a time when there continues to be competing pressures for resources within companies, as always, the final decision rests on a careful cost benefit analysis by the company who ultimately pick up the tab for this.