Revised Investment Association remuneration guidelines published

United Kingdom

The Investment Association (the IA) has published its Remuneration Principles for 2018 together with a letter to Remuneration Committee chairmen.

Key changes in its expectations for executive director remuneration in listed companies in 2018 are:

  • Annual bonuses – disclosure of full details of how bonuses were calculated should be made within 12 months of payment (previously up to 2 years was given), with a new provision that bonus amounts which are more than 100% of salary are expected to be paid in shares, and
  • Relocation benefits – although not relevant on every appointment, members expect relocation costs to be disclosed at the time of appointment, time-limited (though no preferred time-limit is given) and itemised. 

Two other relevant changes are that a restriction on bonuses (where relevant personal targets had been met) where corporate performance was exceptionally bad has been removed, as has the ability for larger listed companies to use more than 5% of the company in new shares for executive remuneration where tougher performance conditions are applied. No explanation for these changes is given, but in relevant cases they would still be aggressive proposals.

The accompanying letter to Remuneration Committee chairmen continues to look for:

  • restraint in the overall amount of remuneration,
  • explanation of director remuneration in the context of what is happening elsewhere in a group (particularly on pension supplement where executive directors often receive a better percentage deal than normal employees),
  • pay for performance (with a particular wish for full explanation where there are non-financial personal targets or the relevant targets for bonus or other remuneration departs from the reported KPIs for shareholders generally), and
  • meaningful shareholder consultation by companies.

The letter also makes some comments on the use of restricted share awards in place of LTIPs. It acknowledges that members have differing views on LTIPs and restricted shares, though moving to restricted shares just because a payout has not occurred under an LTIP is unlikely to be a reason for shareholder support for restricted shares. The letter also tries to move the debate on after what the IA feels has been the emergence of a simple choice between LTIPs and restricted shares. It says that “members continue to encourage remuneration committees to adopt the remuneration structure which is most appropriate for the company and the implementation of their business strategy.” The guidelines set out members’ likely key points on each commonly seen plan.

Although companies and investors will note the IA’s annual contribution at this time of year, they are in the next few months more likely to be influenced by the FRC’s contribution to the current corporate governance debate prompted by the Government, where the FRC’s proposals should emerge before Christmas.

Click here for a link to the Investment Association announcement.