Investment Association sets new shareholder expectations on executive pay
• 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."
