Investment Association calls for more restraint on pay awards

BonusThe Investment Association has called on the boards of the UK’s 350 largest companies to reduce variable pay awards, such as bonuses and long-term incentive plans, for top executives.

In an open letter to company boards, the IA, which represents the UK funds industry, also called for a clampdown on lavish relocation packages, saying that payouts should be disclosed immediately and only paid for a limited time period.

The demands form part of the IA’s principles of remuneration, which are revised annually to reflect best practice for listed companies when setting the pay of company bosses.

Listed firms are also being called upon to ensure that annual bonus targets should be disclosed within 12 months of payment and a portion of any bonus should be deferred if the bonus is greater than 100% of salary.

The chairpersons of remuneration committees of FTSE 350 firms were told that the IA’s 250 UK-based members, who between them manage £7 trillion of assets, expect to see greater transparency on financial and non-financial bonus targets to ensure pay is in line with performance.

In addition, companies will, in time for the 2018 annual general meeting (AGM) season, be expected to publish the pay ratios between the salaries of chief executives and average employees as well as between the chief executive and the executive team.

The IA claims that this year’s AGM season saw some of the UK’s top 20 companies reduce future variable pay awards and that this helped to limit overall executive pay.

Andrew Ninian, the IA’s director of stewardship and corporate governance, said: “This year’s AGM season saw investors flex their muscles and hold big business to account.

“A majority of FTSE 350 companies sought shareholder approval for their new pay policies and many of the UK’s top 20 companies have started to address investors’ concerns on executive pay levels.

“We now expect this trend to be extended across the wider FTSE, with more companies showing restraint on bonuses, long-term incentives and overall executive pay levels.”

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