In this week’s episode of the ‘PAYING FOR GOOD’ podcast, I welcome Andrew Ninian, Director of Stewardship and Corporate Governance at the Investment Association (IA). The IA is the trade body for asset managers in the UK. Its 250 members manage around 10 trillion pounds, mainly for pension savers like you and I. The IA represents the collective voice of its members on a range of issues and today we focus on their executive remuneration expectations.

Listen to the podcast

Every year, the IA publishes two documents on remuneration. They are updated after discussions with members and take into account the corporate governance research from IVIS, the IA’s Institutional Voting Information Service. IVIS does not make voting recommendations but instead flags issues using different colours – red, amber, or blue – depending on the seriousness of the concern. The publications are the:

• principles of remuneration, which set out in detail how investors expect executive pay to be structured in the UK
• annual letter to Remuneration Committee chairs, which highlights the issues investors will be focussing on during the next AGM season

For 2023, key themes include:

• The cost of living crisis
• Remuneration and ESG
• Windfall gains from the March 2020 LTIP (Long Term Incentive Plan) grants

Cost of living crisis
What actions you taken for the lowest paid employees, vulnerable customers, and suppliers?

Remuneration and ESG
How will Remuneration Committees demonstrate that ESG performance targets are an integral part of the business strategy to address ESG risks? Stretched objectives and measurability of outcomes will be important to determine whether and how they should be linked to incentives pay-outs.
If you’re starting your Responsible Reward journey, explain your progress to your shareholders (and come and talk to me for guidance).

Windfall gains from the March 2020 LTIP grants
When the pandemic started, share prices tumbled and caused the number of shares granted to executives via LTIPs to pretty much double overnight. As the three-year vesting of these Covid grants approaches, and share prices has since rebounded, windfall gains unrelated to company performance are likely. Investors expect to see details of what and how much discretion Remuneration Committees have applied to these gains.

During our interview, Andrew and I also discuss salary increases for executive directors. Be mindful of the knock-on effect on incentives, which are often multiples of base pay. If you are planning to increase executive directors’ base pay, make sure you provide the wider stakeholder context around it. Give a sound justification for exceptional performance as your shareholders will expect it!

We end our conversation on the IA register. This is a public database of companies whose resolutions have received 20% or more votes against at AGMs. It also provides links to statements from these organisations on how they have addressed the issues that provoked so much discontent. Some of the entries relate to remuneration (policies, reports, or new share plans) and, last year, one of the firms was an investor themselves!

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.