Investment Association Principles of Remuneration – Watch this Space!

After something of a false start earlier this year, the Investment Association (IA) has now published its letter to FTSE 350 Remuneration Committee Chairs.  The headline is that the IA has heard the current debate on executive pay and so is pressing pause on publishing updated Principles to allow time for a more fundamental review.  The revised Principles will be published later in 2024.  

But what does that mean for this AGM season?  And what can we expect by way of change in the revised Principles when they are published?  Here are our key takeaways:

• Pay for Performance – the IA has put down a clear marker that no matter what might change in their Principles, their first principle: “Remuneration policies should promote long-term value creation through transparent alignment with the agreed corporate strategy” will continue to guide their approach. So companies should not expect a total rewrite of the Principles and will continue to need to show the link between strategy, pay structures, corporate performance and pay outcomes.
• Pay Inequality – the IA has expressed broad support for the cautious approach adopted to executive salary increases by the majority of companies in the high inflationary environment of 2023.  Again, it is clear that no matter what might change in the revised Principles, remuneration committees will need to continue to balance their approach to executive pay with the company’s approach to wider workforce pay.
• LTIP Grant Levels and Hybrid Schemes – the IA notes that downward pressure on LTIP grant levels and an inability to grant equity without performance conditions is a concern for many companies seeking to attract US executives, and the letter contains a somewhat muted acknowledgement that IA members will consider increases to limits and hybrid schemes on a case-by-case basis. This is to be welcomed but let’s hope that the finalised Principles reflect the fact this is a broader issue than just US executives working in UK PLCs; this is about UK PLCs competing with US and other international companies for talent globally.
• Simplification – the letter indicates that the revised Principles will be simplified with a renewed emphasis on the fact they are indeed intended to be principles and not hard rules which should give companies more flexibility in developing remuneration structures that are tailored to their businesses. 
• Disclosure – it is clear that whatever flexibility might come with the revised Principles, the IA’s members will still expect sound justification for the remuneration structures a company wants to adopt and good quality disclosure on how pay outcomes are aligned to corporate performance and wider stakeholder experience. The DRR is not going to get any shorter just yet!

So this isn’t a big bang moment in the world of UK PLC remuneration. However, there is a subtle but distinct change of tone in the IA’s letter which gives a degree of optimism that the final Principles might loosen some of the remuneration fetters that UK PLCs are currently subject to.