Directors' pensions escape scrutiny

The 1996 annual reports of hundreds of quoted companies could escape the new Greenbury rules on disclosure of directors' pensions, as a result of a delay in changing the Stock Exchange rulebook.

The disclosure rules were accepted by the Exchange in principle this summer and were expected to be in force by the autumn. But it has emerged that the new rules canot be implemented until the Institute and Faculty of Actuaries has finalised a guidance note giving detailed instructions to actuaries on how to interpret the new provisions.

This is likely to be delayed until February or March. The Stock Exchange confirmed that it could not enforce a new rule until the guidance note was ready.

The pension disclosure rules were first proposed by Sir Richard Greenbury's committee on top pay, when it reported in July 1995. The report said the increase in value of pensions each year should be disclosed.

Actuaries initially interpreted this to mean disclosure of capital transfer values, and so did some of the members of the Greenbury committee.

But companies were outraged when they realised they would have to disclose awards worth millions for some directors who receive large pay increases near retirement.

There was a fierce rearguard action from industry, which feared that pensions disclosure would lead to a rerun of the political row over "fat cat" salary increases.

After long consultations, the actuaries eventually proposed a compromise, accepted by the Stock Exchange and the DTI in the spring, under which companies would disclose the increases they make for directors' post- retirement annual pension payments. This would be a much smaller number.

In addition, reports are to disclose enough actuarial information to estimate the capital value - the sum required to buy the increased pension.

One leading City shareholder said it has proved extremely hard to pin down the precise way that the pension disclosure rule will work, despite consultations between the Department of Trade and Industry, the Stock Exchange and the actuaries that began in summer 1995.

He complained that the pensions question had become bogged down in actuarial difficulties over the precise meaning of the words.

Many companies have also told the Stock Exchange that they cannot understand how to implement the pension disclosure rule, which was published in outline in the late spring when the Exchange agreed in principle to go ahead with implementing the actuaries' proposals.

The institute confirmed that there had been a delay in preparing the draft guidance note, which will not be sent to members for consultation until early November.

The note is on the general treatment of pension transfer values. The section on directors' pensions is only a small part. It also covers the calculations required for splitting pensions after a divorce under new legislation.

Meanwhile, the Stock Exchange hopes companies will work towards fuller disclosure of directors' pensions in their 1996 reports even if the rule changes are not officially in place.