New guidelines grant UK firms more flexibility in awarding executive pay rises
London-listed companies now have more flexibility to award top executives higher salaries, following changes to remuneration guidelines set by the UK’s £9.1tn Investment Association (IA). The Financial Times reports that the IA, which represents 250 major investors, has announced that it had ‘simplified’ its pay guidelines, allowing businesses to tailor executive pay policies to their specific needs, while remaining mindful of shareholder expectations.
This shift comes amid increasing pressure to retain companies on the London Stock Exchange, following a number of high-profile departures to the US, where executive pay tends to be higher. Andrew Ninian, a director at the IA, stated that the revised guidelines reflect investors’ desire to incentivise long-term performance, a crucial factor in encouraging companies to remain in the UK. However, comparisons to companies in the US have been called ‘mostly redundant’ as few UK firms are of a similar size and global presence as the biggest US firms.
These changes have sparked concerns among some shareholders, especially following recent revolts against pay hikes at companies like AstraZeneca. Despite this, the IA insists that the updated guidelines are crucial to creating a competitive business environment that attracts and retains talent. Under the new framework, companies can now benchmark executive salaries against international peers, particularly in cases where a large proportion of revenue is generated overseas.
Remuneration consultants view the update as a positive development, likely to create a more rational approach to pay discussions. The changes also allow companies to adopt hybrid pay structures, including long-term incentives, which have traditionally been more common in the US. There will also be increased flexibility regarding director bonuses and the deferral of payments, with boards encouraged to exercise discretion in cases where significant external factors impact company performance.
While the new guidelines aim to keep UK companies competitive in the global market and attract top talent, they clearly carry the potential to intensify shareholder dissatisfaction over rising executive pay.
As companies navigate this more flexible framework, they will need to balance the drive to reward executives with long-term incentives against the risk of alienating investors, ensuring that any increases in remuneration are justified and aligned with overall company performance. The success of these changes will ultimately depend on how well companies manage this delicate balance.
