Investors publish updated executive pay guidelines

The Investment Association (IA) has today published its updated ‘Principles of Remuneration’ which outlines IA member views on the commonly accepted approach to executive pay for the majority of companies.

IA members, as investors responsible for £9.1 trillion assets under management, want a competitive UK listing environment that attracts high quality companies to list and operate in the UK, while delivering long-term value for their shareholders. The publication of this year’s Principles follows a review conducted to ensure they support a competitive remuneration environment, whilst meeting the wider expectations of investment managers, including their clients. The Principles and guidelines have been simplified to reflect the evolving practices in the market and the expectations of investors.

The updated Principles have three overarching principles, ensuring remuneration policies:

• Promote long-term value creation through the delivery of the company’s strategy,
• Support individual and company performance within the context of sustainable long-term financial health of the business and sound risk management, 
• Seek to deliver remuneration levels clearly linked to company performance.

The Principles are clear that there is flexibility to adapt pay structures to best suit a company’s business and strategy – they are Principles, not rules.

Investors will analyse the suitability of pay proposals on a case-by-case basis. It is crucial for remuneration committees to engage with their major shareholders to understand their views and provide clear explanations as to why the pay approach is right for their business, company strategy and shareholders. A positive 2024 AGM season reflects the strong alignment between shareholders and companies, with the number of pay resolutions receiving significant dissent falling by 50% compared to 2023.

Investment managers will also consider the requirements of their clients when they engage and vote on executive pay. For example, some pension funds have explicit views on the structure and size of pay packets in the companies in which their savings are invested.

Andrew Ninian, Director of Stewardship, Risk and Tax at the Investment Association, said: “We have simplified our Principles of Remuneration to demonstrate that investors want to incentivise delivery of long-term performance. Our Principles set out the main areas that investors are interested in, stress that each company should adopt a structure that makes sense for its business and the market it operates in, and that we expect early engagement on any potentially novel changes. Investors want to see companies succeed and deliver long-term returns to their shareholders, with the structure of executive pay playing an important role in driving and rewarding these results.