The Investment Association and certain other large investor bodies have published updates to their voting guidance on executive pay in recent weeks, signalling the focus of institutional investors for 2022.

The Investment Association

The Investment Association (IA) has released the latest edition of its Principles of Remuneration, the main source of investor guidance on executive pay for UK listed companies.

Key updates to the Principles include a new section on investors’ expectations for Value Creation Plans (VCPs) and further guidance on increases to pay and making reductions to share awards in the event of a fall in share price.

In its accompanying letter to FTSE 350 company remuneration committee chairs, the IA also highlighted areas of particular focus for its member investors for 2022, including:

  • the continuing necessity – sharply highlighted by the Covid-19 pandemic – to balance the need to incentivise executive performance with the need to ensure that executive pay is appropriate in light of the experience of shareholders, employees and other stakeholders;
  • an emphasis on incorporating Environmental, Social and Governance (ESG) metrics into variable pay performance conditions, based on a rationale that is clearly linked to company strategy and communicated to investors; and
  • the IA’s 2022 voting recommendations on executives’ pension contributions, which stem from its policy that these are expected to be brought in line with those afforded to the majority of the relevant workforce by the end of 2022.

Glass Lewis

Global governance services provider Glass Lewis has also published updates to its Proxy Voting Policy Guidelines for 2022, intended to clarify the key considerations that it takes into account when analysing shareholder votes on pay policies and their implementation.  These include in relation to:

  • the assessment of share awards granted to executives that are directly or indirectly major shareholders in the company; and
  • the use of ESG metrics in variable pay schemes for executive directors.

Institutional Shareholder Services (ISS)

ESG remains a continuing theme as Institutional Shareholder Services (ISS), a well-known US provider of proxy voting and corporate governance services, has also signalled a proposed update to its proxy voting policy for the UK and Ireland concerning the use of ESG.  Its press release can be found here.