Investment Association sets new shareholder expectations on executive pay

Monday 31 October 2016

• Investment Association (IA) has sent an open letter to FTSE 350 on executive pay
• IA Principles of Remuneration updated to foster greater simplicity and flexibility of pay structures
• IA calls for pay-ratio disclosure for UK plc

The Investment Association, whose members manage over £5.7 trillion of assets, has today written an open letter to all companies in the FTSE 350 setting out new shareholder expectations on executive pay.

It comes following the recommendations of the industry-led independent Executive Remuneration Working Group, which looked to address the issue of complexity surrounding executive pay.

The letter states that the Association has now rewritten its own Principles of Remuneration in line with the Working Group’s recommendations to pave way for simpler and more flexible remuneration structures.

The Principles have been updated to ensure that they do not promote a single remuneration structure above others to enable companies to choose the appropriate structure for their business and strategy rather than automatically opting for the commonly used Long Term Incentive Plan (LTIP) structure.

The updated Principles also make it clear, it is essential that company Boards provide investors with clear justification around their Executive’s levels of pay. This should be both in terms of the maximum potential remuneration as set out in the Remuneration Policy, but also payments actually made to the Executive during the year in the context of the company’s performance.

The Association, whose members manage around a third of UK companies on behalf of their clients, is therefore calling upon companies to take action on the levels of pay, and for them to disclose pay ratios between the CEO and median employee, and the CEO and the Executive team, to provide investors with the context they need to understand the scale of the awards been given.

Alongside the updated Principles, the Association has also informed companies of the need to improve shareholder consultation on remuneration issues and to ensure that this engagement is based upon how pay is in line with the company’s strategy.

The Association’s corporate governance research unit, IVIS, analyses companies across the FTSE All Share Index and will be monitoring them against these new principles and will highlight areas of concern to investors ahead of voting at company meetings.

Andrew Ninian, Director of Corporate Governance & Engagement, said:

“Issues surrounding executive pay are a growing concern for investors, politicians and society as a whole. Following the work of the Executive Remuneration Working Group, the Investment Association and its members felt that it was vital to update our principles to ensure that we are not only acting as responsible stewards for our clients but also show that we are aligned with the current climate.

“The increasing complexity of remuneration structures has been the driving force behind these issues and our new Principles are designed to offer a market-based solution to add simplicity and flexibility. It is vital that companies have the opportunity to choose the right structure for their business and this must be done in close partnership with their shareholders.

“Today’s announcement shows that the investment industry is leading change, and we look forward to working with the Government as it puts together its own corporate governance agenda.”

-ENDS-

Notes to editors:

The Investment Association’s open letter can be viewed here.

The Principles of Remuneration can be viewed here.

The Executive Remuneration Working Group’s final report can be viewed here.

For further information please contact:

John Kenchington
Director of Communications
[email protected]
M 07834 089 332

Linsey White
Head of Media Relations
[email protected]
T 020 7269 4635
M 07508 724 022

Alex Hogan
Press and Digital Media Officer
[email protected]
T 020 7269 4620
M 07508 724 066

About the Investment Association:

• The Investment Association is the trade body that represents UK investment managers who manage over £5.7 trillion on behalf of clients.
• 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.