FTSE 350 firms warned to restrict executive bonuses

Investment managers that hold stakes in FTSE 350 companies “will expect companies to continue to show restraint and restrict executive bonuses where government support has been taken and not paid back during the year under review,” the Investment Association’s (IA) annual pay guidelines warned on Friday.

The Investment Association champions UK investment management and its 270 members manage £9.4 trillion of assets and support 114,000 jobs across the UK, including thousands of jobs in Scotland.

“While the vast majority of companies have been sensitive to the experiences of their stakeholders, including employees and customers, throughout the Covid-19 pandemic when deciding pay and bonuses, investors will be watching to ensure this continues next year, as the country continues to recover from the pandemic,” said the Investment Association.

Writing to the chairs of FTSE 350 Remuneration Committees, the IA also informed companies that as ESG (environmental, social and governance) metrics are increasingly a factor in company strategy, these “should flow through into determining executive pay and bonuses.”

“These ESG metrics should be clearly linked to the company strategy,” said the IA.

“The rationale and robustness of ESG performance-related targets should also be made clear to investors.

“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.

“Ensuring the alignment of executive pensions with the wider workforce will continue to be a priority for investment managers this year.

“Investment managers will expect to see a plan to align pension contributions for directors with the contribution levels of the wider workforce by the end of 2022, as part of wider efforts to ensure fairness and good employee relations.

“90% of FTSE companies analysed have already met these ambitions.”

Andrew Ninian, Director of Stewardship and Corporate Governance at the IA, 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.

“With COP26 focusing minds ever more sharply on climate change, and more and more companies rightly linking executive pay and bonuses to ESG targets, investment managers will be watching closely to ensure these targets are both quantifiable, and linked to the company’s strategy.”

The IA said that to support the planned alignment of pensions by 2022, this year, IVIS, the Institutional Voting Information Service 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.

• 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.

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Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.