UK IA Updates Guidance on LTIP Performance Conditions

24 February 2021

The Investment Association (IA) has today issued an addendum to its guidance published in November 2020 (Executive Remuneration in UK listed companies - Shareholder Expectations during the COVID-19 Pandemic), bringing back the ability to delay setting performance conditions for a reasonable period of time (6 months maximum) for companies who have been significantly impacted by the COVID-19 pandemic, until the continued impact of COVID-19 on the business is clearer.

The full updated document can be found here and the relevant new Addendum text is:

For companies who have been significantly impacted by the COVID-19 pandemic, Remuneration Committees may wish to make an LTIP grant at the usual time while delaying setting the performance conditions for these awards for a reasonable period of time (up to a maximum of six months), until the continued impact of COVID-19 on the business is clearer. 

If committees decide to delay LTIP grants until further clarity is established, shareholders would still expect best practice to be a performance period of three years following grant. However, where this is not possible, committees may shorten the performance period by up to six months, contingent on the explanation provided by the committee and adequate post- vesting holding provisions being in place. Where the performance period is shortened, grant sizes should be similarly reduced.

The company should publish the performance conditions as soon as possible after they have been set via an RNS.

Tapestry comment:

The IA acknowledges that some companies are still struggling to set meaningful long term performance targets amidst the current further lockdown and ongoing COVID-19 restrictions, and further clarification from the IA on this point was anticipated. The reinstatement of the same provision found in their original April 2020 COVID-19 guidance (but not included in the November 2020 update) will be helpful to those companies who are once again struggling to set LTIP performance conditions at this time of year. Companies should, however, note that from the new provisions in bold above (which were not included in the April 2020 guidance), the IA are: 1. only expecting this route to be taken by companies who have been ‘significantly impacted’ by the pandemic; and 2. that performance conditions should be disclosed via an RNS as soon as possible after they have been set.

If you have any questions on the above, or any of the investors' requirements for the 2021 season, please get in touch.

Sally Blanchflower & Chris Fallon

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