The annual Glass Lewis remuneration update: “All companies face risks associated with environmental and social issues.”
Having reviewed the 2023 guidance from the IA and ISS in my two previous newsletters, this week we’re turning our attention to Glass Lewis’s UK policy guidelines for 2023.
The 66-page document covers several topics. The two we’ll focus on here are:
• remuneration downfalls that could trigger a vote against your proposals from Glass Lewis
• Glass Lewis’s expectations when linking ESG and executive remuneration – my favourite topic!
As Glass Lewis says, “All companies face risks associated with environmental and social issues.”
11 remuneration downfalls
Glass Lewis could vote against your remuneration proposals if they see:
1. significant increases in base pay or bonuses without a sufficient rationale
2. single cash bonus schemes with no long-term horizon (under 3 years)
3. lack of relevant and challenging performance targets
4. no link between, or disclosure of, company performance, stakeholder experience, and pay
5. inappropriate terms of share plans without appropriate justification – for example imbalance between annual bonuses and long-term incentive plans (LTIPs), excessive use of discretion by the remuneration committee, and share-based dilution limits
6. absence of malus or clawback provisions, deferral, post-vesting holding periods, and shareholding requirements
7. guaranteed bonuses and payments that fall outside of the bonus and LTIP plans
8. overreliance on market data
9. service contracts with notice periods of more than 12 months or with enhanced remuneration rights in excess of 12 months in the event of a change of control
10. non-executive directors receiving cash or share awards
11. executive directors’ pension contributions unaligned to those of the general workforce
On ESG and executive remuneration, Glass Lewis expects the inclusion of non-financial factors in annual bonus plans. For example, they may want to see you’ve included employee turnover, safety, environmental issues, and customer satisfaction. I couldn’t see a similar expectation in LTIPs, which is interesting since ESG objectives, especially the climate-related ones, are by definition long term.
Glass Lewis prefers to see companies disclosing their targets at the beginning of the performance period (ex-ante) rather than retrospectively. It encourages shareholders to “interrogate the use of metrics that award executives for ethical behaviour or compliance with policies and regulations.” I recently saw a post on LinkedIn from an investor who had spotted a new CEO rewarded for ”successfully completing the formal onboarding process” – come on, we can do better than that!
View Glass Lewis 2023 full update
If you’d like to learn more about my work, have a read of my client testimonials, which I’ve just updated. It’s always a pleasure to work with ambitious organisations and help them become employers, investments, and investors of choice.
Remember that whatever sector you’re in and however big or small your organisation is, base pay, incentives, benefits, and pensions are all part of your Responsible Reward offering. By linking your sustainability and remuneration strategies, you become an employer, an investment, and an investor of choice. If you wish to explore this topic further, feel free to book a call with me.