18 November 2021
The Investment Association (IA) has this morning released its updated Principles of Remuneration, with the usual accompanying letter to Remuneration Committee Chairs setting out member expectations for the 2022 AGM season.
Full copies can be found here: 2022 Principles and RemCo Chair letter.
As expected, the 2022 Principles include an update on shareholder expectations regarding the effects of COVID-19 and its aftermath. Critical calls remain for companies to consider the wider stakeholder experience when determining executive remuneration outcomes, to disclose their approach, to show restraint where they have taken and not repaid government support, and to not pay annual bonuses in such cases. An updated statement on investor preference is also included to confirm that, where share prices have fallen, the grant size of future long-term incentive awards should be reduced, rather than relying on discretion at vesting to adjust outcomes.
Environmental, Social and Governance (ESG) metrics also remain high on the agenda, with investors now wanting a statement from those companies that have not already incorporated ESG metrics into their remuneration structures to explain how they will be incorporating these and the approach they will take in future years.
Other changes include a reminder on expectations regarding the alignment of executive pension contributions with the wider workforce (and the policy and report red-topping that will be imposed if this is not met for incumbent directors by the end of 2022) and a new section on the increasingly popular Value Creation Plans.
We will issue a further alert to take you through the changes to the Principles in more detail and the impact that we expect these changes to have. If you would like to see a comparison of the 2022 Principles against last year’s version in the meantime, then please get in touch.