Investment Association tightens guidance on exec pay

The Investment Association (IA) says FTSE 350 companies need to do more to respond to concerns over executive pay rates, or face further shareholder rebellions on remuneration, and has published new guidelines for best practice

The IA’s principles of remuneration states that companies should pay pension contributions to directors in line with the rate given to the majority of the rest of the workforce, rather than giving higher payments as a mechanism for increasing total remuneration.

The triggers under which malus and clawback provisions can be used to forfeit or recover remuneration should be broadened beyond the current triggers of ‘gross misconduct’ and ‘misstatement of results’, in order to make them a more effective tool to recover bonuses. Companies should also set out the process for implementing malus and clawback, not simply the triggers.

Directors should be required to hold a proportion of their shares for a minimum of two years after their departure, so that they consider the long-term value of the company even after their departure.

The IA also wants to see companies adopt new pay ratio reporting requirements early, to maximise transparency over pay and ensure that there is accountability for high levels of pay internally.

Andrew Ninian, the IA’s director of stewardship and corporate governance, said: ‘While the vast majority of FTSE 350 companies develop and implement pay policies that align with savers and shareholders’ interests, a stubborn minority still do not respond to shareholder concerns.

‘Our strengthened guidelines make clear that companies need to demonstrate more robustly the link between pay and company performance. If they do not, they should brace themselves for more shareholder revolts in 2019.’

In the year to 31 October 2018, 61 companies were added to the IA public register of shareholder revolts for pay-related resolutions, and increase of nine on the same period last year. Of these, 15 are FTSE 100 companies, 23 are FTSE 250 companies and 23 are FTSE small cap companies.

Report by Pat Sweet

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