Included in this update: Investment Association expectations on executive pay; Governance Institute publish guidance on dividend resolutions
IA outlines shareholder expectations on executive pay
The Investment Association (IA) has published guidance setting out shareholder expectations on executive pay in light of the COVID-19 outbreak and in response to questions posed by remuneration committees.
Overall, the IA's view is that shareholders recognise that remuneration committees will need to sensitively balance the need to continue to incentivise executive performance at a time where management teams are being asked to demonstrate significant leadership and resilience while ensuring that the executive "experience" is commensurate with that of shareholders, employees and other stakeholders. The impact of COVID-19 will be different for each and every company; whilst there are minimum expectations for every company, shareholders expect remuneration committees to take account of individual circumstances particularly considering the impact on stakeholders.
The IA set out their views on the following issues:
- the impact of dividend suspension / cancellation on directors' bonuses – remuneration committees should consider the use of discretion or malus provisions to reduce any deferred shares related to 2019 annual bonuses where bonus outcomes have been decided, or fully reflect the situation in its 2020 financial year bonus outcomes;
- the adjustment of performance conditions to take account of COVID-19 – the IA does not expect performance conditions for annual bonuses or in-flight long-term incentive awards to be adjusted in light of COVID-19;
- shareholder expectations where 2020 LTIPs have already been granted – the IA does not expect those companies that have already made grants to adjust the size of those grants where a fall in share price is solely related to COVID-19. However, remuneration committees should look at the general market and share price response over the performance period to make sure that windfall gains are not received on vesting;
- shareholder expectations where 2020 LTIPs are to be granted in the coming months – remuneration committees should consider postponing current LTIP grants. The IA presents three options:
- grant on the normal timeline setting performance conditions and grant size at the current time;
- grant on the normal timeline setting the grant size now but committing to set performance conditions within the next six months;
- delay the grant to allow the committee to more fully assess the appropriate performance conditions and grant size. In such circumstances committees should aim to make the grant within six months of the normal grant date.
Committees should explain the approach taken and be clear about the discretionary powers available to them and commit to using them to ensure that outcomes will reflect company and executive performance as well as the experience of shareholders and stakeholders including employees. Committees should use their discretion to reduce vesting outcomes where windfall gains have been received;
- shareholder expectations where companies seek additional support from shareholders and/or the government – again, the IA expects executive remuneration to be aligned with the experience of the company, its employees and other stakeholders; and
- remuneration policies at 2020 AGMs - shareholders believe that companies should consider whether a substantial change to a remuneration policy is appropriate for 2020, but recognise that a balance will need to be struck between incentivising executive performance at this challenging time and ensuring that executive experience is commensurate with that of shareholders, employees and other stakeholders.
ICSA guidance note on dividend resolutions
ICSA, The Chartered Governance Institute has published a Q&A dealing with some of the most significant issues attendant to the decision to withdraw or amend dividend resolutions at AGMs including as to the procedures for withdrawal, the obligations of proxies in relation to amended resolutions, and company announcement obligations.