The Association of British Insurers (ABI) has published a paper on executive remuneration, to help remuneration committees understand how shareholders expect companies to apply the ABI's influential guidelines on executive remuneration in the current economic climate. The principal points of the paper are:
- Remuneration committees should be accountable to shareholders for their decisions, particularly where they involve discretion. The ABI encourages open, honest and constructive dialogue rather than a compliance based approach to remuneration guidelines. Increased transparency should result in a better understanding of remuneration policies and should help avoid unnecessary confrontation.
- Remuneration structures that seek to promote tax efficiency should not increase the company's tax bill or other additional costs. Remuneration committees should be alive to the reputational risk of such schemes.
- In order to avoid windfall gains, share or option grants should be scaled back after a substantial fall in share price.
- Annual bonuses should reward contributions to business over and above the level expected for salary. They should be clearly linked to business targets, ideally through key performance indicators. The payment of annual bonuses is discouraged if the business has suffered an exceptionally negative event, even if some specific targets have been met.
- Retention awards to main board directors rarely work and indicate poor planning by the remuneration committee. Retention concerns alone are not sufficient to increase remuneration. Such awards may be appropriate where new teams are brought in to turn around companies but the remuneration committee should justify them.