How are FTSE 100 companies reacting to the Investment Association’s new 10% share dilution limit?

Last year, the Investment Association (IA) published its updated Principles of Remuneration. The stated intention of the revised Principles was to provide companies with greater flexibility over their remuneration arrangements, reflecting feedback that previous versions were too prescriptive and rigid. As part of the revision, the share plan dilution limits in the new Principles were relaxed, with the removal of the 5% limit for ‘discretionary’ schemes. There is now a single overall dilution limit of 10% of share capital in any rolling 10-year period for all of a company’s share schemes. See our earlier blog post and briefing for more detail. 

A look through 2025 AGM resolutions shows that a number of FTSE 100 companies have taken steps to build the additional flexibility into their plans. That has either been increasing the 5% limit in existing plan rules or adopting a new plan that has the 10% limit in place from day one. This blog post looks at how many companies have implemented the change and the explanations they offered.

State of play after the 2025 AGM season

• 17 FTSE 100 companies put forward AGM resolutions related to discretionary share plans in 2025. 

• 11 companies made the change alongside wider plan renewals/amendments or new plans. Voting support ranged from 96% to 99%. 
• Two of the 17 companies tabled a standalone resolution dealing solely with dilution limits. These standalone dilution resolutions received 99% and 96% support. 
• Four companies amended their plans for other reasons but kept the two-tier share dilution limits. 

Themes emerging from the explanatory notes

There are three key explanations emerging from the AGM resolutions. 

• Global talent competition. One company cited US peers (which are not generally subject to a similar restriction on share dilution) and the need to stay ‘globally competitive’ as a reason for removing the 5% cap. 
• Broad-based participation. The same company stressed that, while the company’s existing plans are technically ‘discretionary’ share plans, in practice, the company operates them on a broad basis as is market practice in the relevant sector. Another company felt the same, with its plan operating across c.30,000 colleagues, making the 5% limit unduly restrictive for what is effectively an all-employee plan. 
• Capital efficiency. Some companies pointed to the operational costs of acquiring shares in the market to satisfy employee awards once the lower limit for discretionary plans bites – a single cap allows for greater use of treasury or new-issue shares.

Practical implications for companies, plans and participants

The increased dilution limit provides some opportunities for companies, plans and participants. 

• Broader eligibility. Extra headroom will give companies room to grant awards to a wider population and continue to make meaningful awards under maturing plans without switching to market-purchase shares. 
• Simpler governance. From a governance perspective, one limit is easier to monitor, disclose and explain both internally and externally. Companies can also benchmark themselves more easily against peers that have already adopted the 10% framework.

However, companies should bear in mind the following points.

• Share usage will be scrutinised. While the IA has removed the 5% cap, it still expects – along with ISS and Glass Lewis – companies to explain why the additional flexibility is needed and for companies to stay within ‘appropriate dilution limits’. 
• Corporate actions will need to be monitored. Because the new cap is measured as 10% of the company’s share capital, anything that alters the company’s share capital will automatically shift the size of the headroom, so acquisitions, buybacks and cancellations will impact the 10% buffer. 
• Balance between executives and the wider workforce. Remuneration committees should monitor how much of the single envelope is consumed by senior executive plans. The IA expects companies to explain why their chosen incentives align with wider workforce structures. 

Some companies are already making use of the IA’s new flexibility – either explicitly via standalone resolutions or more quietly within broader plan updates. While many companies may have concluded they can continue to operate within the existing 5% limit for the balance of a plan’s life, it seems likely that as plans reach the end of their 10 year life, companies will move to the 10% cap. 

For more information on share plan dilution limits, please speak to the authors of this blog post or your usual Freshfields contact.