IA publishes pay principles for FTSE companies ahead of 2018 AGM season

Monday 6th November

The Investment Association has today published its 2018 Principles of Remuneration in an open letter to the Chairs of Remuneration Committees of FTSE 350 companies. The Principles, which have existed for over 40 years, are revised annually to reflect current best practice for listed companies when setting the pay of their top executives.

In its letter to Remuneration Committee Chairs, the IA also outlined areas that its 250 UK-based members, who between them manage almost £7trillion of assets globally, will be focusing on during the 2018 AGM season. These include:

• Levels of Executive Pay: This year’s AGM season (2017) saw some of the UK’s top 20 companies reduce future variable pay awards (such as bonus and LTIPs) which will help to limit overall pay. Our members expect this trend to be extended across the FTSE 350 next year, with more companies showing restraint on future pay awards.
• Pay for performance: Fund managers will be seeking greater transparency on both financial and non-financial bonus targets to ensure pay is in line with performance.
• Pay ratios: Our members now expect companies to disclose the pay ratios between the CEO and median or average employee as well as between the CEO and the Executive team.
• Clarity on incentives: Investors will continue to support those companies that have appropriately aligned their incentive arrangements with the delivery of the company’s long term strategy.

Andrew Ninian, Director of Stewardship and Corporate Governance at the Investment Association, said:

“This year’s AGM season saw investors flex their muscles and hold big business to account.

‘A majority of FTSE 350 companies sought shareholder approval for their new pay policies and many of the UK’s top 20 companies have started to address investors’ concerns on executive pay levels.

‘We now expect this trend to be extended across the wider FTSE, with more companies showing restraint on bonuses, long-term incentives and overall executive pay levels.”

The 2018 principles have been updated to include the introduction of two new requirements for listed firms:

• Any relocation benefits should be disclosed at the time of appointment and only be paid for a limited period
• Annual bonus targets should be disclosed within 12 months of payment and a portion of any bonus should be deferred if the bonus is greater than 100% of salary

Notes to the Editor:
The Investment Association’s open letter can be viewed here.
The Principles of Remuneration can be viewed here.

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Michelle MacMillan
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Helen Ayres

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About the Investment Association:

• The IA champions UK asset management, supporting British savers, investors and businesses. Our 240 members manage £6.9 trillion of assets and employ 93,500 people across the UK
• Our members manage the pensions of 75% of UK households, provide 60% of capital market financing for UK businesses and fund 40% of initial public offerings of shares.
• Our mission is to make investment better. Better for clients, so they achieve their financial goals. Better for companies, so they get the capital they need to grow. And better for the economy, so everyone prospers.
• Our purpose is to ensure investment managers are in the best possible position to:
  • Build people’s resilience to financial adversity
  • Help people achieve their financial aspirations
  • Enable people to maintain a decent standard of living as they grow older
  • Contribute to economic growth through the efficient allocation of capital
• The money our members manage is in a wide variety of investment vehicles including authorised investment funds, pension funds and stocks and shares ISAs.
• The UK is the second largest investment management centre in the world, after the US and manages 37% of all assets managed in Europe.