Newsflash: Investment Association publishes updated Principles of Remuneration 2021 and revised COVID-19 guidance

The Investment Association (IA) has today published the following:

  • Letter to Remuneration Committee chairs setting out expectations for the 2021 AGM season
  • Revised Principles of Remuneration for 2021
  • Updated guidance on Shareholder Expectations during the COVID-19 Pandemic


  • Red Top for remuneration report where incumbent executive pension is 15% of salary (reduced from 25%) or more and remuneration committee has not disclosed a credible action plan to align with the majority of the workforce rate by the end of 2022.
  • Shareholders generally would not expect payment of any annual bonuses for FY2020 or FY2020/21 where direct government support has been used or additional shareholder capital raised.
  • Removal of guidance around six month delay to target setting under long-term incentive plans (LTIPs). It is understood that IA members expect companies to return to a normal approach to target setting, where possible.
  • Greater disclosure expected around approach to target setting and approach to discretion at vesting of awards.
  • Focus on structures or processes in place to ensure the enforcement of post-employment shareholding requirements, particularly after a director has left the company.
1. Letter to Remuneration Committee chairs setting out expectations for the 2021 AGM season

The letter outlines changes to the Principles of Remuneration (see below), as well as IVIS’ revised approach to incumbent pensions in 2021.

Pension contributions for incumbent directors
For companies with year-ends starting on or after 31 December 2020, IVIS will take the following approach:

  • Where the committee has not disclosed a credible action plan to align executive director pension contributions with the majority of the workforce rate by the end of 2022, IVIS will Red Top the remuneration report if the pension contribution received by an executive director is 15% of salary or more.

For newly appointed executive directors, IVIS will continue with its current approach.

2. Updated Principles of Remuneration 2021

A small number of updates have been made to the Principles of Remuneration to reflect developments in market practice and investor expectations.

Post-employment shareholding requirements
Members expect disclosure of what structures or processes are in place to ensure the continued enforcement of the post-employment shareholding requirement, particularly after a director has left the company.

Use of non-financial performance measures
Environmental, Social and Governance (ESG) metrics must be clearly linked to the implementation of the company’s strategy.

Shareholders expect that financial metrics will comprise the significant majority of the overall bonus.

Companies should demonstrate how personal objectives are linked to long-term value creation and should not be for actions which could be classed as ‘doing the day job’.

Investors expect a detailed rationale and disclosure of achievements, which have led to the payment of these elements.

Annual bonus – deferral
A proportion of the entire bonus should be deferred when the bonus opportunity is more than 100% of salary (e.g. deferral should not be restricted to above a specific level of earned bonus).

Leaver provisions
Shareholders would not expect bad leavers to receive annual bonus payments.

3. Updated guidance on Shareholder Expectations during the COVID-19 Pandemic

In April 2020, the Investment Association provided additional guidance on Shareholder Expectations during the COVID-19 pandemic. This guidance has been updated in light of the current expectations of members.

Key changes are set out below

Government support/additional capital

  • Where a company has raised additional capital from shareholders, or has required government support through the Job Retention Scheme, taking government loans or used/using other similar government schemes which offer direct support to companies, shareholders would expect this to be reflected in the executives’ remuneration outcomes and generally would not expect the payment of any annual bonuses for FY2020 or FY2020/21, unless there are truly exceptional circumstances.
  • Failure to take account of government or shareholder support, and the company’s approach to all employee pay, may lead to workforce morale or productivity issues and have significant reputational ramifications for the company and its shareholders.

Indirect government support e.g. business rates relief

  • For some sectors, business rate relief will have a significant positive impact on financial performance. Remuneration committees should disclose how they have taken into account the impact of these government measures on remuneration outcomes.

Suspended or cancelled dividends

  • Companies must clearly disclose how the cancellation of an intended dividend has been reflected in 2019 or 2020 pay outcomes either through the use of discretion or malus provisions to reduce any deferred shares related to the 2019 annual bonus. Alternatively, shareholders would expect this to be fully reflected in the FY2020 bonus outcomes.


  • Shareholders expect companies to show continued restraint. Increases to salary, if necessary, should be in line with changes to the wider workforce. Investors will continue to look closely at how any increases to basic salary or variable pay opportunity are justified and will expect remuneration committees to show restraint in relation to overall quantum.

Annual bonus

  • Members expect higher level of disclosure on how committees have determined financial targets (especially when they are lower than the previous year), and why they may have allowed for pay-outs under non-financial elements only.
  • Companies may also consider whether a higher portion of the bonus should be deferred into shares.
  • Enhanced disclosure is expected where companies have made adjustments to performance measures as a result of exceptional circumstances, such as rent concessions or waivers. Members expect disclosure as to what has been included/excluded and the rationale, especially since such items may be material to pay-out/vesting.

Long-term incentives – windfall gains

  • Remuneration committees should set out the approach and factors considered when judging if there has been a windfall gain from LTIP grants made in 2020. For those that reduced the size of the grant, this should also be stated.
  • Remuneration committees need to be pro-active in determining the appropriate LTIP award size given sustained share price falls. Making awards at maximum opportunity in cases where share prices have fallen substantially is to be discouraged. Committees should consider reducing LTIP grants to reflect the shareholder experience.

Long-term incentives – performance measures

Guidance set out in April 2020 around delaying target setting for six months has been removed. It is understood that IA members expect companies to return to a normal approach to target setting, where possible.

  • Remuneration committees will have to consider the appropriate performance metrics and stretch of targets. This may lead to a reduction in the performance target range or a wider performance range. It is crucial that targets remain sufficiently stretching and targets should not be adjusted to compensate executives for reduced remuneration outcomes as a result of the COVID-19 downturn. It will be important for committees to disclose the process it has been through to set the targets including the use of internal budgets and consensus estimates.
  • The Remuneration Committee should be clear about its discretionary powers on vesting and commit to using them to ensure that outcomes reflect wider stakeholder experience. Shareholders will expect the committee to use their discretion to reduce vesting outcomes where they are not consistent with overall company performance or windfall gains have been received.


  • Companies should confirm in their remuneration committee chair’s statement that they have not adjusted performance targets during the year.
  • Shareholders would not expect LTIP grants to be cancelled and replaced with another long-term incentive grant. In addition, shareholders do not expect remuneration committees to compensate executives with higher variable remuneration opportunity in 2021 for lower remuneration received in 2020 due to the pandemic.

Alternative incentive schemes

  • Shareholders will still consider the strategic rationale for the implementation of alternative incentive schemes such as restricted shares. The inability to set meaningful performance targets is not a reason in itself to move to a restricted share model.
  • As with other long-term incentives, committees should consider whether the size of restricted share awards is appropriate where share prices have fallen and would otherwise risk windfall gains on vesting. This should be considered in addition to the usual discount rate of at least 50% from the LTIP grant level.

New policies

  • Remuneration committees should consider if it is the appropriate time to make substantial changes if the company is significantly impacted by COVID-19. For these companies, it may be more appropriate to wait until there is greater clarity on the future market environment before proposing significant changes to their policies.
  • Minor changes should still be addressed, with policies updated to reflect best practice and UK Corporate Governance Code requirements, including changes to post-cessation shareholding requirements, bonus deferrals and malus and clawback provisions.

The Letter to Remuneration Committee chairs can be read here.

The revised Principles of Remuneration 2021 can be read here.

The updated guidance on Shareholder Expectations during the COVID-19 Pandemic can be read here.

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