Why trustees should be paid, and how much

It is not simply the time involved in preparing for and attending meetings, taking day-to-day decisions between meetings and, in some cases, managing advisers or dealing with member queries.

They are also required to maintain a sufficient level of trustee knowledge and understanding, in line with guidance from the Pensions Regulator.

The problems faced by pension schemes have also become more complicated over recent years.

Trustees are now expected to be up to speed with the ins and outs of complicated products, including pension increase exchange exercises, asset-backed contributions and phased buy-ins, to name just a few.

It is certainly not unreasonable to expect that someone who maintains this level of knowledge and commits a significant amount of time should be remunerated appropriately.

But what constitutes an appropriate level of remuneration? And what should be the key factors in determining it?

Arguably, this should be determined in a similar way to the remuneration of an executive on a company board.

Existing remuneration

Is the trustee already being paid for some or all of the role they perform? This is often the case where a company employee sits on the trustee board. It's possible the time they spend on trustee duties is already being paid for by the company through their salary.

It is important, however, to include their duties as trustee of the scheme in their annual appraisal and give appropriate credit for areas where they may have gone beyond what is expected, such as undertaking training outside of work hours or staying late following a meeting.

Qualification and experience

As with any remuneration structure, the qualification and experience of the individual concerned ought to be taken into account.

The value of any qualification or previous experience should be assessed against the role the board is expecting that individual to perform. A legal background, for example, would not necessarily equip an individual to assess investment strategy options any better than another trustee.

The experience they have had with five other schemes implementing similar strategies, however, might. It is therefore crucial to consider both qualification and recent experience.

Role profile

Not all trustees will perform the same role. In smaller schemes, one may be tasked with day-to-day management of advisers, fielding queries from members and chasing up actions from trustee meetings – in the same way as a pensions manager in larger schemes. 

It would be reasonable for this trustee be paid more than another with the same qualification and experience who simply attends two meetings each year and has little involvement outside of that.

The process of defining the roles of individuals on the board, and using those to determine remuneration levels, can often help to focus trustees’ attention.

This focus should be on what needs to be done each year, the extent to which this should be delegated to advisers or retained as a trustee responsibility, and to identify the most appropriate individuals to be involved in particular activities.

Performance measurement

Paying trustees has the useful effect that the company and trustee board may be more inclined to assess performance, both of individuals and the board as a whole, to ensure the scheme continues to derive value for money.

As any good HR director will tell you, assessing performance depends on having a framework of clear objectives for measuring the activity conducted by an individual or group over the year.

Sitting down with the company to determine and prioritise the objectives of the scheme over the year, the results the trustee board and company would like to see and how these will be measured, is an invaluable process – and one which in my experience is conducted by too few schemes.

If paying trustees results in this activity taking place, any spend in trustee fees is likely to pay for itself in terms of increased productivity, better outcomes and more accountability for individuals on the board.

Marian Elliott is head of trustee advisory services at actuarial consultancy Spence & Partners