The IA (formerly the Investment Management Association) has published the 2015 version of its Principles of Remuneration which replace the 2014 version. These principles, which set out the IA's views on the roles of the remuneration committee and shareholders in deciding directors' remuneration and how it should be structured, are largely unchanged from the 2014 version. One change to note, however, is in relation to long-term incentive plans. The minimum performance period is still stated to be 3 years but whereas the 2014 version suggested that investors would prefer a longer period, the 2015 Principles state that a performance and holding period of 5 years is now expected by investors.
A covering letter was also sent to Remuneration Committee Chairmen by the IA highlighting the key changes to the Principles but also setting out areas of concern for IA members. These include:
- salary increases – concern as to the level and frequency of salary increases
- disclosure of bonuses – these should be disclosed in full at the end of the year or there should be a commitment to disclose details at a specified time. The letter states that IVIS (Institutional Voting Information Service) (now part of the IA) will be asked to red top companies which do not disclose targets or commit to future disclosure, indicating an area of serious concern
- notice periods in service contracts – these should be the same for the company as the director and include the ability to withhold pay in lieu of notice where the director is under any kind of investigation
- pension arrangements - these should be in line with those of the rest of the workforce
- recruitment and leaving arrangements – new executives should not be compensated for a fall in the value of the company and remuneration committees should be able to justify the treatment of departing directors, particularly when a director is treated as a good leaver.
The IA has a working group looking at simplifying executive pay and proposals for this are expected in spring 2016. The letter invites those with views on executive pay to get in touch.