Responding to investor dissent triggered by FTSE 350 companies not acting on executive pay concerns, the U.K. Investment Association issued a new version of executive pay guidelines.
The industry body that represents U.K. money managers overseeing more than £7 trillion ($9 trillion) in assets has updated principles outlining investor expectations of how companies should pay their top executives. The move follows an increased number of shareholder rebellions during the 2018 annual meeting season caused by companies seemingly not listening to investor worries.
Under the revised principles, which the association describes as best practices, investors will expect pension contributions of directors to be in line with the rate offered to the rest of the workforce, rather than used as a tool to boost total compensation of these directors, an Investment Association release stated.
The updated rules also state investors will expect companies to utilize "malus" and clawback provisions more broadly to forfeit or recover remuneration beyond triggers such as "gross misconduct" and "misstatement of results," the IA said.
Investors, under the updated rules, also will expect companies to compel their directors to consider the long-term value of the company by requiring them to hold some of the shares they own for a minimum of two years in case of a departure. Companies will also adopt new pay ratio reporting requirements early, to maximize transparency over pay and ensure internal accountability for high levels of pay, the IA added.
"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. This year's review of the principles follows a 2018 annual general meeting season that saw increasing dissent on remuneration resolutions in the FTSE 100," Andrew Ninian, director of stewardship and corporate governance at the Investment Association, said in a news release.