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Investors urge FTSE 350 firms to link executive pay to performance

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BATH, ENGLAND - OCTOBER 13: In this photo illustration, £1 coins are seen with the new £10 note on October 13, 2017 in Bath, England. Currency experts have warned that as the uncertainty surrounding Brexit continues, the value of the British pound, which has remained depressed against the US dollar and the euro since the UK voted to leave in the EU referendum, is likely to fluctuate. (Photo Illustration by Matt Cardy/Getty Images)

Listed companies must make a clearer link between pay and performance and justify executive remuneration levels to avoid shareholder dissent, the Investment Association (IA) has said.

The IA has written to all FTSE 350 firms outlining the standards it expects their remuneration policies to meet ahead of the 2020 annual general meeting (AGM) season, when most listed companies are due to bring new policies to a shareholder vote.

Read more: Hammerson consults shareholders over executive pay concerns

“IA members continue to believe that a high level of executive remuneration is a reputational
risk to companies, individual directors and their shareholders,” wrote Andrew Ninian, the association’s director of stewardship and corporate governance.

“It is increasingly important that remuneration committees are considering the wider employee pay context and fairness of executive pay when setting pay levels and deciding on the remuneration outcomes,” he continued.

Executive pay packages have come under intense scrutiny from shareholders recently, and the issue is set to dominate the 2020 AGM season, which will begin in May next year.

Property developer Hammerson said last month that it would consult shareholders after resolutions including its remuneration report faced a backlash from investors at the company’s AGM, while software firm Micro Focus has pledged to overhaul its executive pay policy after investors raised concerns about its structure.

Read more: Micro Focus overhauls executive pay after shareholder backlash

“The 2020 AGM season will be a key year for many companies, with investors looking out for greater alignment on pay with long-term company strategy,” said Ninian.

“Investors will be looking for signs that companies continue to listen to key concerns and ensure the pay structures of their top team align with company performance,” he added.

Main image credit: Getty