On 24 February 2021, the Investment Association published an addendum to their guidance on shareholder expectations during the COVID-19 pandemic in relation to executive remuneration in UK listed companies. The guidance was initially published in April 2020 and updated in November 2020 (see our previous blog post). The addendum has been published due to the impact that the COVID-19 pandemic and the related economic uncertainty has had on some remuneration committee’s ability to set long term performance targets.
The addendum provides that remuneration committees will have to consider if performance conditions for future LTIP grants are still appropriate in the current market environment, noting that Shareholders want long term incentive performance conditions to be appropriately stretching. It goes on to suggest that, remuneration committees may wish to delay setting performance targets up to a maximum of six months until the impact of COVID-19 on the business becomes clearer but make LTIP grants at the usual time. If a remuneration committee does delay setting performance conditions, the shareholder expectation would still be that best practice is a performance period of three years following grant. Where this is not possible, remuneration committees may shorten the performance period up to a maximum of six months but grant sizes should be similarly reduced. Any reduction in performance period will be contingent on the explanation provided by the remuneration committee and provision of sufficient post-vesting holding provisions.
The company should publish the performance conditions as soon as possible after they have been set via an RNS.
