On the Record: What is your approach to governance?
Railways Pension Scheme
Jenifer Goodchild, Head of trustee governance
• Location: Darlington and London
• Assets: £22bn (€29.8bn)
• Members: 340,000
• Multi-employer DB and DC scheme
• Over 200 employers
The governance structure of the trustee company for the Railways Pension Scheme (RPS), Railways Pension Trustee Company Limited, consists of a main board and four sub-committees. There is an audit and risk committee, an integrated funding committee, a committee which deals with member casework and a DC committee.
Because it is quite a large scheme, the trustee company has two subsidiary companies, Railpen and RPMI , which deal with investments and administration respectively. The board of the trustee company has non-executive directors appointed to those companies as well, which helps ensure that the administrative and investment functions are aligned with the trustee company. The holding company is owned by all the employers within the rail industry, so the whole structure is aligned with our stakeholders.
All trustees to the Railways Pension Scheme are employer appointed or member nominated, sharing equal seats on the board. A recent review of their time spent on trustee work found an average of 31 days a year, which we feel is an appropriate amount of time for the size of the scheme, and reflects the dedication and commitment of the trustee directors.
Trustees receive remuneration that is set by the members of the holding company, so the employers in the rail industry have had a vote on how the trustees should be remunerated.
The appointments of the CEO, the trustee company secretary, and of RPMI statutory directors, are decided with the input and approval of the trustee board. Remuneration for those employees is set by a non-executive remuneration committee, which includes the trustee chairman.
Being a complex investment structure and scheme to run, we need the right people, with the right intellectual capital. Any remuneration should be closely linked to performance, so that people are held accountable to what they are expected to deliver.
Over the years, we have had to get smarter at managing our governance budget. We have managed to keep our fees at the same level in cash terms over the last seven years. It is important that trustees continue to evolve, such as establishing where they add most value and where dedicated experts would be most advantageous to members.
Peter Hansson, CEO
• Location: Stockholm
• Assets: SEK25.6bn (€2.8bn)
• Members: 39,138
• Second-pillar fund for the Swedish banking sector
For SPK, it is important to keep a degree of separation between strategy and implementation, to ensure accountability. We have a board and an executive team with clearly defined and separate roles. The board is essentially responsible for setting the strategy, monitoring its implementation and for holding the executive team to account. The board draws the top-level guidelines on several matters, particularly investment and risk ones. They provide instructions to the staff who carry out investment activities, risk management, operational governance issues and communication. However, the board never carries out any operational work or gets involved in operational discussion.
SPK functions like a traditional corporate, rather than a pension fund. We have a code that sanctions separation of responsibility and accountability. Whatever I do as CEO, I am liable to the board, which has the ability to discuss and assess my work. Separation between those who establish strategic limits and those who implement the strategy within those limits is essential. I discuss these issues at length with pension funds in other jurisdictions, and I do not fully understand those situations where the board has responsibility and decides on all the details of the management of the organisation. I cannot see clearly who is accountable for the decisions that have been taken vis-à-vis those who are accountable for their implementation.
Our board meets four times per year. Three of those are two-hour meetings, and the fourth is a two-day meeting. The latter is the ‘strategic’ meeting, during which the board reviews all the issues, from asset-liability management, risk limits, key reporting ratios and investment limits. As a CEO, I can work with a set of rules, which means I do not have to go back to the board to take operational decisions.
For the same reasons stated above, the board sets the remuneration levels for the CEO and other senior roles, whereas the remuneration level for other staff is set by the executive team within a predetermined budget. Remuneration for board members is set by a committee which represents the employees’ organisations. Board members are also appointed by employees following collective discussions.
Modern pension funds need talent on board, and must pay market prices for it. But pension funds need to set limits within which those hiring decisions are made.
Hans de Ruiter, CIO
• Location: Rijswijk
• Assets: €3bn
• Members: 15,500
• Pension fund for employees of the Netherlands Organisation for Applied Scientific Research (TNO)
The traditional governance model, with social partners (employers, employees and pensioners) sharing seats on the pension fund board, works well for TNO. Other pension funds may have a board that consists purely of external professionals. But we have a good balance of power, and are also able to find skilled board members who meet the regulator’s requirements.
It is definitely possible for non-professional board members to fulfil their role effectively. As board members, they should be able to understand the pension fund industry to a reasonable degree, and to make the right decisions without necessarily knowing all the details. The model is comparable to what you might find in big companies like Shell, for instance. Non-executive directors at large corporates may also not know the fine details of all the processes that are taking place, but they can and need to understand the strategy and the main risks and challenges involved. The pension funds are not really different from that.
Those who want to become board members can and do take courses to become educated on disciplines such as investment management. A period of training is necessary to be appointed to boards. The Dutch central bank (DNB), the pension fund regulator, sets stringent requirements for prospective pension fund board members. Aside from skills and knowledge, the regulator assesses how much time a prospective board member can dedicate to the pension fund. The regulator assumes that when one holds a board seat, he or she has to spend one day a week on the pension fund. This is the minimum board members should spend on the scheme.
As a pension fund, we need to invest in our people. We can do that by providing training and educational programmes, but also by offering an attractive remuneration package. But we do find a gap between what are considered normal remuneration levels in the pension industry and what is considered normal in the finance industry. There can be a discussion on whether the two industries should be more aligned and comparable, because pension funds want to attract the best people. However, I am not sure the gap can easily be bridged. The difference is likely to persist. Perhaps it would be desirable that remuneration in the finance industry would move towards the pension fund industry rather than theother way around.
Interviews conducted by Carlo Svaluto Moreolo