Vida FatemiThe Investment Association (IA) has written to FTSE 2350 companies’ Remuneration Committee Chairs. IA outlines how investors will engage with investee companies on executive pay in the 2024 AGM season.
Investors will look to:
- support company boards with the ongoing need to navigate the inflationary environment to motivate employees and senior executives;
- consider whether executive pay outcomes are appropriate given the performance achieved during the year; and
- consider how the committee has set targets for 2024.
IA has also consulted with nearly 100 companies in the FTSE 350. It wants to create a competitive UK listing environment, which in principle needs a better correlation between pay and performance. The respondents highlighted three themes:
- The need to increase pay opportunities through LTIP grant levels – to attract US executives and compete in the US markets, there needs to be more flexibility to offer higher LTIP awards to create a competitive remuneration structure;
- The use of hybrid schemes which incorporate both performance and restricted shares – again, these schemes are in use elsewhere and are attractive; and
- The requirements in the UK Corporate Governance Code reduce the perceived value of remuneration.
Investors and companies will need to assess on a case-by-case basis proposals on pay awards and hybrid schemes based on the company’s individual circumstances.
As market practice develops, IA will be reviewing the pay guidelines to ensure they reflect current market thinking and are simplified – flexibility is, however, also provided to allow companies to adapt their pay structures to best suit their business and strategy. IA will publish its updated Principles of Remuneration later this year.