- CORPGRO Newspoint
- Posts
- PRINCIPLES OF REMUNERATION 2025
CORPGRO SUMMARY
This is a summary of the 17 page IA document published in October 2024.
|
PRINCIPLES
Remuneration must align with strategy and,
Support sustainable long term value creation for all stakeholders, recognising both individual and corporate performance.
With pay levels clearly linked to company performance.
Remuneration Committees
Remuneration Committee Chair and members must understand the strategy and have strong relationships with directors, management and shareholders. The entire board should be involved in this process.
Informed independent decisions need information and independent advice suited to the needs of each company.
Shareholder and other stakeholder’s views need to be reflected in decisions through constructive consultation.
Remuneration Committees should disclose their key decisions and the reasoning which lead to pay outcomes.
Philosophy and Structure
The remuneration policy must fit the company’s business needs and support longer term strategy,
in a simple way, with good line of sight for executives,
while attaining strong alignment of long term interest between executives and shareholders.
All while respecting suitable dilution limits.
Levels of Remuneration
Explain why remuneration levels and maxima suit the company’s circumstances, including material stakeholders such as the workforce.
Balance, attract, motivate and retain, with good outcomes for shareholders.
REMUNERATION COMMITTEE GUIDANCE
OVERVIEW
Remuneration must support the business and deliver the strategy to create value for shareholders and other stakeholders.
The IA Principles guide companies to meet investor expectations, both as to the company’s outlook and the path to results which deliver the pay outcome aspirations.
Differing frameworks are expected, the guidelines are not rules but the alignment between pay and company performance is key.
Any non-comply choices will need full explanation and must set out risk-mitigation aspects.
SHAREHOLDER CONSULTATION
Consultation is encouraged, and vital if material change in approach or pay levels is proposed.
Full information and full shareholder opinions are also expected.
Disclosure of differing shareholder views upon the proposals, process and upshot is important.
Wrap up communication is best practice, with comment in the DRR.
PAY LEVELS
Levels should be company specific with rationale.
Performance pay must be linked strongly to visible short and long tern delivery.
Potential pay outcomes should be clear with reasons.
Comparators should be disclosed, with the selection rationale.
Market median policy is not accepted, it leads to pay ratcheting.
Workforce and other stakeholders must be considered, and so to the pay structures in the total company considered.
Cap incentive pay, and justify any big short term payout against the longer term aims.
BASE PAY
Base salary should reflect: experience, role responsibility and company size and complexity; without sole reliance on benchmark data.
Pay rise maxima should reflect local pay rises for the workforce generally, absent good justification such as change in role profile.
New salaries should note prior incumbent pay, with any higher pay justified.
If the new salary is lower, the following rise should be phased, performance linked and disclosed at the outset.
PENSIONS
Pensions should align with the workforce generally.
No variable pay should be pensionable.
BENEFITS
Benefits should be disclosed fully.
For new directors, relocation benefits on appointment should be disclosed with rationale, and time bound.
ANNUAL BONUS (STI)
Key bonus targets must be important for the relevant year.
Targets should be quantifiable and robust and aligned to strategic delivery.
Justify qualitative targets explaining basis of measurement and the shareholder and stakeholder alignment.
Bonus metrics must link to strategic KPIs and the value creation impact disclosed.
Targets must reflect KPIs observed in results presentations and the annual report.
End period disclosure of targets set, attained performance and bonus outcomes are expected (or justify some later disclosure).
Robust, transparent and value accreting ESG metrics may reflect material ESG issues identified in strategy.
Bonus deferral into shares helps long term shareholder alignment, aids shareholding guidance levels and supports Malus & Clawback but deferral derogation might be acceptable where individual director shares are above guideline levels.
Performance should not be less than one year, or subject to post-set adjustments.
M&A adjustment is expected to ensure the target stretch tension is maintained.
LONG TERM INCENTIVES
Performance period of three years, and a hold period totaling five years is expected.
The LTIP approach should be clear, vesting share awards linked to performance, and or awards linked instead to longer term executive shareholder wealth aims; or a mix of the two.
Disclose how the chosen approach links to both to strategy and the wider workforce earning opportunity.
The LTIP outcome should reflect personal factors and shareholder experience including share price.
Shares over cash LTIPs are much preferred, and any dividend accrual element should be delivered in shares.
LTIP maxima must recognise the full vesting profile from threshold, target and maximum, and be set in the light of assessed attainment probability.
Grant levels must reflect the potential for windfall gains in adverse share price circumstances.
A grant haircut is appropriate following a big share price fall, in preference to vesting discretion.
Non-financial and ESG metrics should relate to the business strategy, be set in a quantifiable and stretching manner and proportionate to the value delivery to the business.
Cliff vesting is less favoured than feathered vesting, enhancing the pay outcome profile alignment with long term performance.
Retesting is not accepted.
Adjustment on capital change etc., to maintain target rigour is welcome and expected.
SPECIFIC LTI PLAN ISSUES
Performance Share Plans
Performance should be based on group performance.
TSR metrics should be averaged consistently, over time and between comparators, with no below median vesting.
EPS metrics should beware share buy backs and distorting factors.
Disclose both pre-grant targets and resulting outcomes.
Restricted Share Plans
Simple and transparent, but may deliver too high reward for mediocre results.
The link to strategy and culture is important.
Case by case acceptance requires, a discount on award size of 50% and deployed underpins, with annual vesting unwelcome.
Hybrid LTIPs
These are often PSP and restricted stock, and sometimes STI and LTI combinations, which are often seen in a business with a USA profile.
The disclosure expectation increases in order to reflect the situation fully.
VCPs
Sceptical investor views are expected, and so early consultation and strong rationale are essential.
Full disclosure of strategy alignment is needed including:
Alternatives considered
Money cap
Five year period minimum
Verifiable transparent targets
Clear dilution disclosures
LTIP Technical Issues
Mid-market share price at grant is expected
Within a 42 day results announcement window
No re-pricing or re-testing of conditions
Plan life of ten year maximum
Within normal dilution limits (high growth and justified exceptions aside)
Employee trust holding maximum 5%
LTIPs AND DIRECTOR ALIGNMENT
Shareholding Guidelines
Set minimum holding and maximum ramp-up period
Annual LTIP grant size might be the minimum holding required
Specify non-compliance sanctions, such as bonus deferral or LTIP grant haircut
Owned shares and vested but deferred shares can count toward compliance
Post employment shareholding should last two years and be the lesser of the leaver holding amount, or the minimum shareholding guideline amount
Enforcement should apply via service contracts, LTIP rules or trusts in which holdings are held
Malus and Clawback
Invoke triggers must be set to suit the company and its business
Executive agreement to the trigger conditions
Incentive documents should consistently include the triggers
Clear communication to participants is needed
Clear enforcement process documentation is required
Discretion
Discretion is expected to reflect the broader, long-range context of the company, its shareholders and major stakeholders
It should avoid rewarding or penalising for factors outside the control or influence of executives
Discretion should be balanced and consistent, up or down
Positive discretion can reward performance not captured by the incentive results
Negative discretion may apply to reflect underlying performance factors of the individual or the company, or significant adverse events
Discretion should be specific with rationale
Consultation is expected particularly if discretion impacts the company’s governance or reputation
Clear disclosure is needed and how discretion links to the company’s remuneration policy
Discretion should be within specified legal and contractual limits
And should be applied within approved policy, including the remuneration maxima
Regular review of discretion use and the discretion framework is expected
RECRUITMENT OF DIRECTORS AND ALIGNMENT
New joiner salaries must
Reflect skills and experience and consider the prior incumbent salary
No automatic matching or beating the past figure is expected
These expectations will be judged on a case by case basis by shareholders
Total compensation should reflect
Market pay conditions
Company performance and strategy and
Material stakeholder expectations
Buy-outs must be like-for like; with similar terms applying to
Present value, and
vesting and performance terms of the forfeit awards
With all these aspects disclosed fully
Notice periods
Should be one year or less
Starting immediately on resignation, not delayed or extended
Leaver status
Clear definition and disclosure of leaver types is needed
Leavers should not benefit from discretion or enhancements
Malus and clawback should apply in misconduct or mis-statement cases
Incentives should apply only to good leavers, time pro-rata reduced and subject to the original conditions
Other leavers should forfeit incentives in full
Leaver status and outcomes should be disclosed
No payment should be linked to failure or under-performance, but rather linked to shareholder value to maintain reputation and shareholder trust
SPECIAL AWARDS
Special awards or ex-gratis payments are unwelcome as
They may encourage an entitlement or reward for failure culture
The pay for performance link may be undermined
Where in point, these principles are important
Avoid discretionary adjustments or exceptions that might undermine the policy integrity or credibility
Turnaround or exceptional circumstances may need special awards, but, if so, the rational and how the long term needs of the business are met, must be explained fully
Such awards must be proportionate, suitably performance linked and subject to clawback
Consultation is essential, and disclosure of the consultation process and outcome in the DRR is needed
NED FEES AND SHAREHOLDING
NED fees should
Reflect the complexity, experience contribution and the time commitment of the NED
Disclose the link between the fees paid and the expected time commitment
NED Shareholding
Is encouraged generally
With part of fees delivered in fair value shares flagged as a possibility
NED Incentives
No NED incentives are expected, as this undermines independence
Savvy Investors Know Where to Get Their News—Do You?
Here’s the truth: there is no magic formula when it comes to building wealth.
Much of the mainstream financial media is designed to drive traffic, not good decision-making. Whether it’s disingenuous headlines or relentless scare tactics used to generate clicks, modern business news was not built to serve individual investors.
Luckily, we have The Daily Upside. Created by Wall Street insiders and bankers, this fresh, insightful newsletter delivers valuable insights that go beyond the headlines.
And the best part? It’s completely free. Join 1M+ readers and subscribe today.
CORPGRO Helps Companies With:
Please feel free to email or call:
Damian Carnell - [email protected] +44 (0) 7989 337118
VA Bec Bostock - [email protected]
Please share this CORPGRO information with your board or your colleagues.