SHANGHAI JIAO TONG UNIVERSITY
THESIS OF BACHELOR
Corporate Governance Arrangement: Pension Investment Scheme
Case Study: British Airways
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This paper identifies some of the main governance weaknesses that persist in pension fund systems by examining the case of British Airways. The paper highlights problems of poor planning in pension plans. The ...view middle of the document...
Yet, despite regulatory and industry initiatives, governance weaknesses persist among companies in global.
The governance of pension plans and funds involve the managerial control of the organizations and how they are regulated, including the accountability of management and how they are supervised. All pension funds have a governing board, which is a group of people responsible for the operation and oversight of the pension plans and funds. They are the ultimate decision-makers, having overall responsibilities for strategic decision such as setting the investment policy â€“ including the strategic asset management, the funding policy and the risk management policy, reviewing the fundâ€™s performance and monitoring the administration of the pension fund in order to ensure that the objectives set out in the find are attained.
In this study we examine the case of British Airways (BA), which is one of the worldâ€™s top airlines and is now suffering from an enormous pension deficit due to poor pension fund governance by the organization.
1.2 Objectives and Methodology
We attempt to bring a fresh perspective to the pension issue by examining the annual financial report and analyzing the articles related to British Airwaysâ€™ pension situation and make recommendations for deficit deduction and pension fund governance.
2 British Airways Case Analysis
2.1 Background of British Airways
British Airways is the airline company of the United Kingdom with its headquarters situated in Waterside. It is the biggest airline of UK on the record of number of international flights and destinations it has. However, the largest the companies they are, the biggest risk they face because they have mature schemes that must pay out millions of pounds to retired members every year. However, the governing board of the pension plans in BA overlooks the environments that the company situated and the funds performance. Final salary pension schemes have become increasingly expensive to offer in recent years, which led to huge pension deficit. Analysts claim BA has one of the top 10 biggest pension deficits for a private company.
2.2 Types of Pension Plans
There are two types of pension schemes for employees, namely defined contribution plan and defined benefit plan.
Defined contribution plan states the employerâ€™s contribution, and any future benefits are limited to the amount that can be provided by the contributions and the returns earned on the investment of those contributions. It is more preferable in the companyâ€™s point of view as most of the risks lie with the employees. However, employers need to devote much time and effort in planning the scheme.
Under a defined benefit plan, retirement income is determined on the basis of the employeeâ€™s income and length of service with the company. The plan states the benefits to be received by employees after retirement or the method of determining such benefits. It is more preferable...