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Executive remuneration 2022 – updated voting guidance for listed UK companies

Posted on 20 January 2022

The three most influential shareholder organisations that express views on UK listed company executive remuneration have recently each issued their new shareholder voting guidance for 2022.  This bulletin reviews the new aspects contained in that guidance.  The three organisations are: the Investment Association, Institutional Shareholder Services (ISS) and Glass Lewis. The Investment Association is a trade body that represents UK investment managers while ISS and Glass-Lewis are shareholder proxy advisory firms.   

The Investment Association (IA)

The main changes to the IA guidance primarily focus on two areas: the incorporation of Environmental, Social and Governance (ESG) metrics into executive incentives and limiting unjustified levels of pay-outs. The guidance can be found within the Rem Com Chair letter (theia.org) and Principles of Remuneration 2022 (theia.org).

The pandemic

The IA's previous guidance on how companies should respond to the COVID-19 pandemic remains unchanged – companies must continue to reflect the shareholder and stakeholder experience in their executive pay, and communicate their approach. This has been reflected in practice with many UK listed companies reporting in 2021 that executives' earnings were reduced due to lower payments under bonus and long-term incentive plans.

ESG Metrics

The IA now expects companies that incorporate ESG risks and opportunities into their long-term corporate strategies also to include those factors in performance conditions used in variable pay. If a company does not do so then they should explain to shareholders how they will do this in the future. The ESG metrics should be quantifiable and disclosed to investors.

Malus and clawback

Events that could trigger the use of malus and clawback should be broader than just misstatement of results and gross misconduct, which were previously recommended by the IA. Most UK listed companies already have a wider range of malus and clawback triggers, reflecting other corporate governance influences such as the FRC's guidance on board effectiveness. The IA also recommends that remuneration reports should include a description of how malus and clawback will be enforced.

Levels of remuneration

Companies should adequately justify the level of remuneration paid to their executives and show restraint in relation to overall quantum. Remuneration committees should consider how increases in base salary have a ‘multiplier effect’ on the overall level of remuneration, such as setting the basis for variable pay awards.

Use of discretion

When exercising discretions in relation to variable pay schemes, remuneration committees should ensure that the pay-outs reflect not only overall corporate performance and the experience of shareholders in terms of value creation but also the experience of wider stakeholders, such as employees, and the general market environment. These additional considerations should be disclosed in the relevant remuneration report along with the reasons why the remuneration committee is satisfied that the pay-outs are appropriate.


Consistent with the IA's previous announcements, incumbent executive directors' pension contributions should be aligned with the rate that is available to the majority of the workforce by 31 December 2022.

Executive service contracts

The updated guidance now incorporates the guidance on executive employment contracts and termination payments that was previously in a separate joint statement with the NAPF.

Long Term Incentive Plans (LTIPs)

Remuneration committees should be confident that the chosen LTIP is appropriate considering the long-term strategy of the company and it should not be chosen as a result of short-term performance, or changed regularly.

If a company is moving from an LTIP to a restricted share model, then the initial reduction in grant levels (recommended to be at least 50%) should be held at that level in the future and not gradually increase over time.

Remuneration committees should review the level of grants under LTIPs each year to assess whether the grant level is appropriate given the company’s financial and share price performance and where there have been reductions in the share price then awards should be scaled back at grant to avoid windfall gains. The IA prefers this approach to remuneration committees exercising discretion at the time of vesting in order to avoid windfall gains.

Remuneration committees should clearly explain the materiality of the metrics chosen for executive incentives and their connection to the company’s strategy.

Value Creations Plans (VCP)

VCPs have become more common over the last couple of years and so the IA has introduced some new guidance in relation to this type of LTIP:

  • investors are generally sceptical of VCPs and therefore they should only be used where they are appropriate to the specific circumstances of the company;
  • VCPs should have an overall cap on the number of shares and the total value of awards that can be delivered, and the remuneration committee should provide a clear explanation as to why this monetary cap is appropriate;
  • performance targets need to be substantially more stretching and robust than for a conventional LTIP and the remuneration committee should provide a clear rationale as to why those targets and the potential gain by participants is appropriate.


The guidelines issued by ISS tend to be less detailed than those of the IA, although its voting guidance can often be more influential.

The ISS has made a modest update in its 2022 guidance by endorsing the use of ESG performance conditions as long as the targets are material and quantifiable.


The guidelines can be found at Glass Lewis Voting Policies. The main changes are set out below:

Environmental and Social (E&S) metrics

Glass Lewis has addressed the inclusion of E&S metrics into executive incentives. It is strongly supportive of companies incorporating material E&S metrics into short and long-term executive incentive plans, provided they are tailored to a company's particular circumstances and are designed to reward executives for results greater than those that would be expected as an ordinary part of their role. Glass Lewis expects sufficient disclosure for shareholders to be able to understand how the metrics align with the company's E&S strategy and robust disclosure on the metrics selected, the rigour of the performance targets set, and the determination of corresponding pay-out opportunities. For qualitative E&S metrics, Glass Lewis expects companies to provide shareholders with a thorough understanding of how these metrics will be or were assessed.

Remuneration committee accountability

Glass Lewis may recommend that shareholders vote against the re-election of the remuneration committee chair where there are substantial concerns with the remuneration policy presented for shareholder approval and/or the pay practices outlined in the remuneration report. Where the committee chair is not up for re-election, Glass Lewis may instead recommend that shareholders oppose the re-election of a long-serving committee member. In particularly egregious cases or where there are ongoing concerns with a company’s remuneration policy or practices, Glass Lewis will continue to recommend that shareholders vote against the re-election of all remuneration committee members.

Share plan participation for significant shareholders

Glass Lewis does not generally expect an executive who holds more than 10 to 20% of a company's shares to participate in executive share plans. Similarly, where a company is controlled and managed by a family, Glass Lewis believes that the use of share incentives for representatives of the family generally to be inappropriate, unless safeguards are in place to protect against further entrenchment of the controlling shareholders’ stake.

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