ABI publishes executive remuneration guidelines

The Association of British Insurers (ABI) has published clear guidelines on executive pay.

The revised Principles of executive remuneration report, in addition to the new Report on board effectiveness, aim to help organisations better understand the views of institutional investors on effective boardroom performance and executive pay.

The revised principles are the latest update to ABI guidance.

The principles show that company boards should:

• Support appropriate reward for exceptional performance

• Strongly resist any payment for failure

• Understand that excessive or undeserved remuneration undermines the efficient operation of the company, adversely affects its reputation and is not aligned with shareholder interests

• Not engage in crude benchmarking when seeking to justify increases

Otto Thoresen, director general at the ABI, said: “Effective boardrooms should be the powerhouse of the UK economy.

“The board effectiveness report and long standing remuneration guidelines represent UK best practice. They aim to ensure that remuneration is linked to performance and shareholders’ interests are protected.

“We continue to favour evolution, building on what we have learnt from recent years to make sure companies act in shareholders’ interests and deliver long-term economic growth that will benefit society as a whole.”

Carol Arrowsmith, partner in the remuneration team at Deloitte, said: “We support the recommendation that remuneration committees should determine remuneration for executive directors in the context of the wider employee population.

“We consider this to be particularly important when looking at salary increases where we believe committees should avoid falling back into the cycle of increasing directors’ salaries at an ‘executive’ rate.

“We particularly welcome the guidance on benchmarking and the importance of making sure that any comparisons are made on a fair and reasonable basis.

“Remuneration committees should ensure comparator groups are chosen with care and should use benchmarking data responsibly.We encourage committees to avoid chasing the median and to recognise that being within the market range represents competitive pay.”

“Over the past decade, while potential bonus payments have more than doubled, the median payout has consistently been between 70% and 80% of the maximum and we are not surprised that shareholders are focusing on this area.

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“We hope the disclosure of measures and targets, and particularly the disclosure of the extent to which relevant targets were met, will encourage committees to ensure that targets are set in the expectation no bonus will be paid unless company performance warrants it and any payout above target requires significantly better than ‘good’ performance.”

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