Other guidance on remuneration
Investment Association's Principles of Remuneration
Usually updated annually
Set out a number of overarching principles on executive pay which are supported by more general guidance for remuneration committees on level of pay, bonuses, pensions, long term incentive schemes, contract terms and severance payments
Focus mainly on ensuring that levels of executive pay are appropriate and that performance conditions are challenging
Principles suggest
Remuneration committees should select a remuneration structure which is appropriate for the specific business and efficient and cost effective in delivering its longer term strategy. The principles do not seek to prescribe or recommend any particular remuneration structure
Shareholders prefer simple and understandable remuneration structures
Remuneration structures should be designed to reward sustainable business performance and therefore deliver long term value to shareholders
Executives should build up a high level of personal shareholding to ensure alignment of interest with shareholders. The shareholding should be maintained for a period after they have left the company
Annual bonuses should be cancelled if the business has suffered an exceptional negative event, even if some targets have been met
Remuneration structures should be subject to malus and clawback provisions that allow the company, in specified circumstances to withhold or claw back all or part of a bonus or long term incentive award
Recommednations made in the IA Principles are often adopted as either statutory provisions or Code requirements. This is one of the reasons they are influential, another reason is that they representb the views of institutional investors in the UK
The IA Principles include a section on shareholder consultation which suggests that
Consultations need to focus on the major strategic remuneration issues rather than the minor details of pay. However companies should ensure that the final proposals do not contain any surprises. They should provide details of the whole remuneration structure not just the proposed changes so that investors are provided with a complete picture and sufficient information to make an informed voting decision
Companies should listen and respond to feedback from their shareholders to enhance their proposals. They should not anticipate that shareholders will always support their proposals. Consultation does not guarantee that they will be accepted
The consultation process can be improved by remuneration committees understanding the voting policies of the company's largest shareholders
Subsequent to the conclusion of the consultation process and prior to finalising details in the remuneration report, the remuneration committee should review the proposals in light of any subsequent events that occur between the consultation and the implementation of the policy to ensure that the proposals remain appropriate
IA also sends letters to listed companies highlighting current issues of concern to investors. It's November 2017 letter on executive pay highlighted
Members concerns over the general level of executive remuneration
The need to justify any disparity between executive director pension provision compared to the general workforce
The fact that shareholders expect full disclosure of threshold, target and maximum performance targets, either at the time of payment of the aware or within 12 moths where the information is commercial sensitive
The fact that shareholders expect an explanation if the metrics used to set targets for executive remuneration differ significantly from the company's headline KPIs
PLSA Corporate Governance Policy and Voting Guidelines 2018
On remuneration, it states that
Remuneration committees should expect executive management to make a material long term investment in shares of the business they manage
Pay should be aligned to long term strategy and the desired corporate culture throughout the organisation
Pay schemes should be clear, understandable for both investors and executives and ensure that executive rewards reflect returns to long term shareholders
Remuneration committees should use the discretion afford them by shareholders to ensure that awards properly reflect business performance
Companies and shareholders should have appropriately regular discussion on strategy and long term performance
PLSA Policy indicates the circumstances in which PLSA members are likely to vote against the directors remuneration policy or directors remuneration report of a listed company.
A shareholding requirement of less than 2x salary
Inappropriate metrics or insufficiently stretching targets for annual bonus or LTIP
Failure to disclose variable pay performance conditions for annual bonuses
An absence of malus and clawback provisions
Any provision of re-testing of performance conditions
Layering of new share award schemes on top of existing schemes
Excessively generous salary or performance related pay awards
Warns that if the process of engagement prior to the AGM fails to produce a remuneration policy that shareholders can support, this will usually be viewed as a serious failure on the part of the chair of the remuneration committee and is likely to result in shareholders voting against re-election and possibly the re-election of other committee members
PRA/FCA remuneration codes of practice
Companies in the financials services sector may also be subject to remuneration codes of practice found in the PRA Rulebook and the FCA Handbook
Establish principles that are used to assess the quality of a firm's remuneration policies and whether they encourage excessive risk taking by its employees
Firms must apply the relevant codes to remuneration code staff including senior management, risk takers, staff engaged in control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management and risk takers and whose professional activities have a material impact on the firm's risk profile