The Investment Association has launched new guidelines for executive remuneration, following “shareholder rebellion” this AGM season.
The trade body says that there is mounting frustration from investors that listed companies are not taking concerns about excessive pay packets for senior staff seriously, and has issued a new “Principles of Remuneration” document today.
The IA has asked companies to make a number of changes to how they pay executive and how they report on their packages.
The association says pension contributions to directors should be paid in line with the rate given to the majority of the rest of the workforce.
The document also asked companies to clarify processes behind penalties and clawback provisions, as well as their triggers, and to broaden these triggers to “forfeit or recover remuneration behind ‘gross misconduct’ and ‘misstatement of results’.”
The trade body has proposed a requirement for directors to hold a proportion of their shares for a minimum of two years after their departure to ensure they have an interest in the long-term value of the company after they leave.
The IA also asked called for stricter pay reporting standards to increase transparency and accountability.
The IA has written an open letter to the chairs of the remuneration committees of FTSE 350 companies, expressing their members’ frustration that many companies were not listening to their views.
Disagreements over remuneration have led to a growing number of shareholder rebellions over the 2018 AGM season, according to the IA’s monitoring.
The IA was tasked by the government to set up a public register to track listed companies facing significant shareholder opposition over executive pay last year.
IA director of stewardship and corporate governance Andrew Ninian says: “Growing shareholder rebellions on executive pay in the 2018 AGM season should come as no surprise to firms that continue to ignore or side-line the concerns of investors.
“Our updated principles reinforce the crucial role investors play in holding big business to account.
“While the vast majority of FTSE 350 companies develop and implement pay policies that align with savers and shareholders’ interests, a stubborn minority still do not respond to shareholder concerns.
“Our strengthened guidelines make clear that companies need to demonstrate more robustly the link between pay and company performance. If they don’t, they should brace themselves for more shareholder revolts in 2019.”