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The Investment Association (IA) has announced that the Institutional Voting Information Service (IVIS) will provide ‘red top’ and ‘amber top’ warnings to company profiles it will release to investors before the annual general meetings (AGMs).

The IVIS’ “red top” warning means that the company has serious and significant compliance issues regarding board room diversity and pension contributions for newly-appointed directors.

IA director, Andrew Ninjan said that the shareholders expect that executive pension contributions should be “equal to that of the majority of the workforce.” However, the warning does not mean that the shareholders will go against that company’s resolutions and remuneration reports.

The ‘amber top’ warning is the next less serious warning. It will be attached to the profiles of companies where existing executive directors enjoy pension contributions equal to at least 25% of their salaries.

The Hampton-Alexander review, an independent review body has also set guidelines for the Financial Times Stock Exchange (FTSE) to create greater diversity in the boardroom. The target is 33% for board and leadership teams in FTSE to be women by 2020.

Helen Corden, employment law expert at Pinsent Masons, said that the warnings are issued to pressure companies to make their executive teams and boards more gender diverse. Companies that don’t meet the set target should have their explanations and action plans in place. 

The warning announcement follows the publication in November 2018 of the latest update to the IA’s Principles of Remuneration which shows high pension contributions for executive directors.

The UK Corporate Governance Code also states that executives’ pension contributions should be “aligned with those available to the workforce”.

IVIS will also ‘red top’ companies on the FTSE 350 index without any or only one woman on their boards except if one woman meets the 33% diversity target set by the Hampton-Alexander review. “Amber top” warnings will be issued to companies with at least a woman on their board if the number is less than 25% of the board because the companies are not likely to meet the 33% target by 2020.

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