The Investment Association (IA) published revised Principles of Remuneration (the Principles) which were last updated in November 2022.  The Principles are guidelines (not rules) aimed at assisting remuneration committees to adopt remuneration structures which are both aligned with the long-term interests and expectations of the company/its shareholders and which are appropriate for the business.

The IA indicated their intention to conduct a “fundamental review” of the Principles in a letter to remuneration committee chairs of FTSE 350 companies in February 2024.  The changes are designed to improve the competitiveness of UK remuneration practices while ensuring that there is a clear link between pay and performance.

The simplified Principles are centred around three overarching principles, namely that remuneration policies should:

• promote long-term value creation through transparent alignment with the board’s agreed corporate strategy;
• support individual and corporate performance, encourage the sustainable long-term financial health of the business and promote sound risk management for the benefit of material stakeholders; and
• seek to deliver remuneration levels which are clearly linked to company performance.

The Principles are accompanied by detailed guidance to assist remuneration committees in applying the Principles.  This guidance covers commonly used remuneration structures and elements of pay (including pensions, benefits, bonuses and long-term incentives) and sets out shareholder expectations in respect of each.

The guidance notes that investors will take a case-by-case approach to analysing the suitability of remuneration arrangements and encourages remuneration committees to engage with their major shareholders to understand their views and provide clear explanations as to why the remuneration policy and approach is right for their business, company strategy and shareholders.

The Principles are predominantly aimed at companies with a main market listing in the UK but are also relevant to companies listed on other markets and private companies.  The Principles are designed to be read alongside the UK Corporate Governance Code.