8 October 2024
Tapestry Alert: UK
BIG NEWS: IA Principles of Remuneration 2025 published!
BIG NEWS: IA Principles of Remuneration 2025 published!
Dear Client
The Investment Association (IA) has this afternoon released its updated Principles of Remuneration, setting out member expectations for the 2025 AGM season and beyond.
You can read the full updated Principles here.
Background to this year’s changes
In February, the IA wrote to remuneration committee chairs, stating that it would be conducting a more wholescale review and update to the Principles this year. Since then, representatives have been holding roundtables with interested parties and experts in this area.
We have been waiting for the updated Principles with bated breath since the summer, and they are now here!
So, what’s changed?
In summary, as anticipated, changes have been made to reflect evolving market practice and investor expectation. The emphasis on long-term value creation and alignment with strategy remains, but there also now appears to be greater focus on clarity of explanation and rationale, together with ensuring high quality consultation between companies and investors.
Whilst we are digesting the full content of the updates, here are a few of the more headline-grabbing changes that have caught our attention so far:
1. Removal of 5% dilution limit: previously, the IA Principles recommended that companies include overall dilution limits on the total number of shares that can be awarded under the company’s share plans. As a reminder, there were two separate limits to be aware of:
- ‘10% limit’ for all plans – commitments to issue new shares or re-issue treasury shares under all plans must not exceed 10% of the company’s issued share capital in any rolling 10-year period.
- ‘5% limit’ for discretionary plans – commitments to issue new shares or re-issue treasury shares under discretionary plans should not exceed 5% of the company’s issued share capital in any rolling 10-year period.
The 5% discretionary plan limit no longer appears in the updated Principles, although the overall 10% limit remains.
2. Exceptions to the 10% dilution limit: the Principles actually go even further and note that there may be exceptional cases where companies seek to obtain shareholder approval to increase the 10% limit as well, such as for newly listed high growth companies.
3. All-employee plans get eternal life: the Principles state (as before) that plans should be taken back to shareholders for approval every 10 years, although all-employee plans are now excluded from this requirement.
4. Guidelines not rules: the IA are keen to point out that the updated Principles are simply guidelines, whereas they are aware that some stakeholders have taken them before now to be prescriptive rules that companies have to follow.
More detail
As mentioned, we are still reviewing the details of the updated Principles, but wanted to update you to let you know that they have now been published and to give you some key snippets as to the headline changes that are in there.
We will be holding an event very soon where we'll explore all the details of the updated Principles with you – so, watch this space!
Tapestry Comment
As always, the Principles provide a useful barometer of investor views and key focus areas in relation to executive pay. The updated Principles are important for companies with a main market listing in the UK, but may also be relevant to companies listed on AIM and even some private companies (especially those considering an IPO), especially when considering their executive pay structures for the year ahead.
The anticipated launch of this year’s updated IA Principles has been eagerly anticipated, especially as it was heralded as a refresh and rewrite following consultation. Has the IA torn up the previous Principles and started again, or is this more of an evolution rather than revolution? From an initial review, we’re probably looking at the latter, which may provide some comfort to companies used to operating in line with IA guidance. From the ‘headlines’ it does look like there may be some useful changes for companies. Taken together with what some may see as a change in general approach (‘guidelines, not rules’), this does look like a move towards greater flexibility for companies, to allow a more tailored approach depending on a company’s needs and goals.
Companies will need to be careful that even though elements of the IA Principles may have changed, their plan rules may still contain those provisions, so thought will need to be given to how and when changes can be made to those rules to update them to reflect the updated IA Principles, if desired. Speak to your legal advisers if you are unsure.
Do look out for details of our special event, coming very soon, where we will discuss all the details and implications of the updated Principles!
As always, if you have questions about any of the content of this alert, or there is any assistance you need in relation to your incentive plans, do not hesitate to contact us.
3. All-employee plans get eternal life: the Principles state (as before) that plans should be taken back to shareholders for approval every 10 years, although all-employee plans are now excluded from this requirement.
4. Guidelines not rules: the IA are keen to point out that the updated Principles are simply guidelines, whereas they are aware that some stakeholders have taken them before now to be prescriptive rules that companies have to follow.
More detail
As mentioned, we are still reviewing the details of the updated Principles, but wanted to update you to let you know that they have now been published and to give you some key snippets as to the headline changes that are in there.
We will be holding an event very soon where we'll explore all the details of the updated Principles with you – so, watch this space!
Tapestry Comment
As always, the Principles provide a useful barometer of investor views and key focus areas in relation to executive pay. The updated Principles are important for companies with a main market listing in the UK, but may also be relevant to companies listed on AIM and even some private companies (especially those considering an IPO), especially when considering their executive pay structures for the year ahead.
The anticipated launch of this year’s updated IA Principles has been eagerly anticipated, especially as it was heralded as a refresh and rewrite following consultation. Has the IA torn up the previous Principles and started again, or is this more of an evolution rather than revolution? From an initial review, we’re probably looking at the latter, which may provide some comfort to companies used to operating in line with IA guidance. From the ‘headlines’ it does look like there may be some useful changes for companies. Taken together with what some may see as a change in general approach (‘guidelines, not rules’), this does look like a move towards greater flexibility for companies, to allow a more tailored approach depending on a company’s needs and goals.
Companies will need to be careful that even though elements of the IA Principles may have changed, their plan rules may still contain those provisions, so thought will need to be given to how and when changes can be made to those rules to update them to reflect the updated IA Principles, if desired. Speak to your legal advisers if you are unsure.
Do look out for details of our special event, coming very soon, where we will discuss all the details and implications of the updated Principles!
As always, if you have questions about any of the content of this alert, or there is any assistance you need in relation to your incentive plans, do not hesitate to contact us.
Team Tapestry
