Investment Association publishes updated Principles of Remuneration

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01 Nov, 2016

The Investment Association (IA) has published its updated Principles of Remuneration ("the Principles").

This remuneration guidance sets out its members’ views on the role of shareholders and directors in relation to remuneration and the manner in which remuneration should be determined and structured. 

Updates to the Principles, which have been made to reflect the IA’s response to the Executive Remuneration Working Group Final Report include:

  • Slimming the Principles down to a set of high level issues and updating them to reflect the recommendations of the Executive Remuneration Working Group.
  • Amending them to acknowledge the need for increased flexibility of remuneration structures.
  • Updating them to ensure that they do not promote a single remuneration structure.
  • Updating them to ensure that the level of remuneration has appropriate focus and that companies should disclose pay ratios between the CEO and median employee, and the CEO and the Executive team, to provide the context of the remuneration provided.
  • Including a new section on the importance of improving shareholder consultation, ensuring that it is based on the strategic elements of remuneration and leads to consultation rather than affirmation of the company’s position.

Additionally the IA has issued a letter to Remuneration Committee chairmen highlighting key aspects of the Principles that its members have asked to be re-emphasised to companies.  These include:

  • Levels of remuneration – the level of remuneration awarded to Executive Directors continues to be an area of particular concern for members. The letter indicates that “it is essential that companies adequately justify the level of remuneration awarded to Executives”.  In particular, the letter indicates that salary increases or increases to variable remuneration “should be justified with clear and explicit rationale”.
  • Bonus disclosure – Shareholders require the retrospective disclosure of bonus targets so that they can ensure that there is an appropriate link between pay and performance. For 2017 the letter highlights that members will expect:
  • Financial targets – Full retrospective disclosure of the threshold, target and maximum performance targets, the level of performance achieved against these targets and the resulting bonus outcome. Members now also expect Remuneration Committees to provide an overview of how the performance targets have been set.
  • Personal and Strategic Performance Targets – the letter highlights that members expect a thorough explanation as to why personal or strategic targets have paid out, not just a description of non-financial performance indicators.
  • Pensions - There is a concern with the size of pension increases and the complex pension arrangements for Executive Directors. The letter indicates that where there is a disparity between the contribution rates of the Executive Directors and the general workforce, then these differences should be clearly justified.

The revised Principles of Remuneration and letter to Remuneration Committee chairmen are available from the IVIS website.

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