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IA Publishes Pay Principles For FTSE Firms

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