On 13 January 2010 the Association of British Insurers (ABI) published a paper (dated 15 December 2009) setting out its position concerning the executive remuneration of main board directors, following the publication of an updated version of its guidelines on executive remuneration on 15 December 2009.
The paper is addressed to the remuneration committees of companies to help them to understand how shareholders expect the ABI’s guidelines to be implemented in the current economic conditions, and to encourage constructive dialogue between remuneration committees and shareholders on the delivery of core principles. The paper aims to highlight elements of the ABI’s guidelines that are currently of particular relevance.
Points covered in the paper include the following:
- Remuneration committees should be accountable to shareholders for their decisions, especially when these decisions involve the use of discretion.
- Tax efficient remuneration structures should not result in additional costs or tax bills for companies. Remuneration committees should also be aware that such schemes risk causing damage to the reputation of the company and shareholders.
- Shareholders should be consulted when companies propose to pay annual bonuses to directors after the business has suffered an exceptional negative event. In those circumstances shareholders should be consulted on bonus policy and proposed payments should be justified.
- If there is a risk that windfall gains could arise if the level of share or option grants expressed as a multiple of salary is maintained after a substantial fall in the company’s share price, grants should be scaled back.
- Where awards vest based on performance relative to a comparator group, to prevent undeserved rewards, any determination of vesting should be justified in relation to the overall financial performance of the company and not solely by performance relative to peer companies and such determination should be disclosed in the remuneration report.
- Concerns over the retention of main board directors are not sufficient grounds for remuneration to increase.
The paper also reminds remuneration committees of the core principles in the ABI guidelines, considers the role of the remuneration committee and comments on the transparency, structure of remuneration, salary, annual bonuses, incentive schemes, retention awards and tax avoidance.
(ABI, Position Paper on Executive Remuneration, 13.01.10)