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Legal and General Investment Management (LGIM) has published its revised UK Principles of Executive Pay

September 2021

Legal and General Investment Management (LGIM) has published its revised UK Principles of Executive Pay (September 2021). The full principles can be read here.

Key changes are as follows:

Real Living Wage and fair pay

LGIM expect the remuneration committee to “challenge management if the company is paying less than the real living wage as set out by the Living Wage Foundation or if the company is not offering all employees the chance to work a minimum of 15 hours per week. This represents the absolute minimum a company should be doing to reduce income inequality and poverty within its workforce.”
 

Environmental, Social and Governance (ESG) metrics

LGIM has revised its guidance on the use of ESG metrics, removing the previous statement that “ESG performance targets lend themselves to act as a modifier to financial outcomes rather than to provide additional reward”.

The revised guidance states that:

  • Where ESG metrics are included as part of the long-term incentive, we would not expect this to be weighted more than one-third of the total award.
  • For those companies in high-risk sectors, where the health and safety of employees is key, we would expect a health and safety modifier to be introduced to the annual bonus and/or long-term incentive.
  • LGIM expects to see awards reduced by at least 20% or more if there have been fatalities.
  • ESG metrics should be meaningful, measurable, aligned to the company’s strategy and subject to third-party verification.

Pay principles and wider stakeholder context

The guidance has been amended to include reference to wider stakeholder experience when considering remuneration:

  • Remuneration should be: “fair in terms of what the company has achieved; balanced in terms of total pay to the executive when compared with employees, shareholders and the wider stakeholder experience; and understandable for the recipient, the board and its stakeholders.”
  • The Remuneration Committee chair statement should explain why the total single figure is appropriate in the context of the “the delivery of key performance indicators (KPIs), employee pay, shareholder value created and the wider stakeholder experience over the relevant period”.

Shareholding guidelines

  • As a minimum, a shareholding guideline should be equivalent to the value of share awards earned under an LTIP or equivalent to three years of restricted share awards.

LGIM have removed the ‘aspirational’ shareholding guidelines (which were provided for FTSE 1-30, 31-50 and 51-100 companies ranging between 4x – 5x salary).

Post-employment shareholding guidelines

The guidance continues to state that post-exit shareholding guidelines should reflect a significant proportion of the prevailing minimum shareholding requirement (no less than 80% of the in-post requirement). It has been updated to clarify that:

  • “Where a company has set an in-post shareholding guideline that is substantially greater than LGIM’s minimum expectations (equivalent to their annual LTIP award or three times the restricted share award plan), then we will support a proportionally lower post-exit shareholding requirement providing it remains at least 80% of the minimum shareholding expectation.”

Restricted share plans

  • LGIM expects companies to reduce annual restricted share awards in years when the share price has fallen in value by more than 20%. This is now consistent with the guidance for other long-term incentive awards.

Annual bonus plans - opportunity

Amendment of wording from “LGIM will not support any increases to the annual bonus” to “LGIM will not generally support increases to the annual bonus.”

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