The Investment Association has published its annual letter to Remuneration Committee chairs and updated Principles of Remuneration (“Principles”) for the next AGM season. Most of the changes reflect the new UK Corporate Governance Code and the Investment Association (“IA”) has updated the Principles to make them “clearer and sharper”.
That certainly describes the tone taken in the annual letter. The IA makes it clear that companies which fail to respond to shareholder views, or do not take the time to understand those views, will find investors have no choice but to vote against their remuneration proposals. Reflecting the hardening mood on director pay, the IA warns that executive remuneration is a reputational issue for the company, individual Remco members and those executive directors who receive remuneration from contentious arrangements. Any boards still taking the view that pay is a contractual matter only and that fairness in remuneration is a woolly, nice to have, concept have been given a very clear warning that the landscape has changed.
These priorities are clear in the IA’s key issues for the 2019 AGM season, which include:
- Encouraging companies to report their CEO pay ratio in 2019 (even though the new requirements apply from 2020 for most companies), and to adopt Option A as this is the most statistically robust calculation method.
- Highlighting that engagement between Remuneration Committees and investors remains key, although some IA members have found Remuneration Committees are “overly considerate” of the management perspective and so do not give sufficient weight to the views of investors.
- Making clear that shareholder consultations should be a genuine process of obtaining shareholder views on a company’s complete remuneration structure (not just proposed changes) and not a validation exercise.
- Reiterating that “ordinary pension savers” want to understand why investors support remuneration pay-outs, and so investors must be able to link pay and performance through transparency on financial and non-financial targets in order to justify their support.
The key changes to the Principles mostly reflect the new UK Corporate Governance Code. In summary: Continue Reading