Investment managers expect companies to restrict executive bonuses if government support has not been paid back during the year under review, according to the Investment Association (IA) latest annual pay guidelines.
The majority of companies have been sensitive to the experiences of their stakeholders, employees and customers throughout the Covid-19 pandemic when deciding on pay and bonuses.
According to the trade body, 13% of the 83 FTSE companies analysed were "colour topped" by the Institutional Voting Information Service (INVIS) for their Covid response during the 2021, AGM season.
The colour code, or ‘Top’, helps highlight the severity of issues to be considered.
The IA also wrote to the chairs of FTSE 350 Remuneration Committees, which told companies that ESG metrics should also determine executive pay and bonuses.
Fund managers want to see that ESG metrics are clearly linked to company strategy.
“The rationale and robustness of ESG performance-related targets should also be made clear to investors,” the IA wrote. “Companies with ESG risks and opportunities incorporated into their long-term strategies should have these similarly incorporated into their remuneration structures, and where they haven’t, should explain to investors how they will do this in future years.”
Another priority for investment managers is the alignment of executive pensions with the wider workforce. By the end of 2022, investment managers will expect to see a plan to align pension contributions for directors with the contribution levels of the wider workforce, as part of wider efforts to ensure fairness and good employee relations.
According to the IA, 90% of FTSE companies analysed have already met these ambitions.
To support the planned alignment of pensions by 2022, INVIS will “red top” any new remuneration policy that does not explicitly state that any appointed executive director will have their pension contribution set in line with the majority of the workforce.
It will also “red top” any remuneration report where executive pension contributions are not aligned to the majority of the workforce rate, or there is not a credible action plan to align pension contributions for incumbent directors by the end of 2022.
The strongest concern is red, followed by amber. A blue top shows no areas of major concern, while a green top indicates an issue that has been resolved.
Andrew Ninian, director of stewardship and corporate governance, said: “Since the start of the pandemic the vast majority of FTSE companies have sensitively balanced the need to incentivise senior executives while at the same time fairly reflecting the experiences of their wider workforces, their stakeholders, and their customers. However, as we recover from the pandemic, ensuring this approach is maintained will be critical for investors.”
Ninian stated that as COP26 focuses minds more sharply on climate change, more companies will link executive pay and bonuses to ESG targets.
He added that investment managers will be watching closely to ensure these targets are both quantifiable and linked to the company’s strategy.
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