Investment Association Principles of Remuneration 2023


On 9 November 2022, the Investment Association (the "IA") published its latest version of the IA Principles of Remuneration (the "Principles") and Letter to Remuneration Committee Chairs (the "Letter").

The Principles and the Letter set out the key expectations of the IA's members for the 2023 Annual General Meeting ("AGM") season.  As has been the case since the Covid-19 pandemic, Remuneration Committees should be mindful of the wider economic climate and stakeholder expectations regarding remuneration, with any executive pay rises being carefully considered.  Remuneration Committees should ensure that remuneration decisions are justified and explained in annual reports and, as always, engagement with shareholders ahead of the 2023 AGM season will be essential.

Cost of Living Crisis

As expected, in light of rising inflation, the cost of living crisis and ongoing macro-economic uncertainty, the IA considers that Remuneration Committees should sensitively balance the need to continue to incentivise executive performance with the experience of shareholders, employees and those most impacted by the cost of living crisis. Given the disproportionate impact of high inflation upon  lower earners, the IA encourages Remuneration Committees to be aware of widening inequality and to consider salary increases for executive directors below the rate of increases given to all employees.  Remuneration Committees should also be mindful of the knock-on effect that salary rises can have on other aspects of the overall executive pay package.  All salary increases for directors will have to be carefully justified in the wider stakeholder context.

In relation to performance measures, the issues and different performance drivers considered by the Remuneration Committee should be explained to shareholders, in the context of the wider stakeholder experience.

Windfall Gains

The Letter notes that in 2023 many Remuneration Committees will be making vesting decisions in respect of 2020 Long Term Incentive awards, which were granted at a time of low share prices in the midst of the Covid-19 pandemic. Unless appropriate measures were taken at the time of grant, the IA expects that outcomes may need to be reduced to avoid windfall gains.  However, it remains to be seen how necessary this will be given the current economic uncertainty and the recent falls in share prices.  Remuneration Committees should explain to shareholders how they have considered the impact of any potential windfall gains when determining vesting outcomes and either (i) why any reduction is appropriate, or (ii) why the Committee has decided not to adjust for windfall gains.

2023 Remuneration Policies

For those companies seeking shareholder approval for new or amended remuneration policies in 2023, the IA expects them to show restraint on increases to variable pay opportunity, with any increases being carefully explained in the context of the business and delivery of strategy.

ESG Metrics

There has been a growth in companies incorporating ESG metrics into their variable remuneration and some investors now expect material ESG risks and opportunities to be incorporated into executive remuneration structures. However, other investors only consider it necessary where the ESG metrics are material, linked to the business strategy and can be simply measured and disclosed.  The IA states that companies should clearly explain the journey they are on to incorporate ESG metrics into variable pay and how they will develop this approach in the future.  Companies should be mindful of shareholder scrutiny over the metrics, and the Principles note that ESG metrics should not reward executives for 'business as usual' activity nor should they be used as a vehicle to increase overall quantum.


Investor expectations have been that executive pensions should be aligned with the rest of the workforce (as required by the UK Corporate Governance Code) by the end of 2022.  The IA has confirmed that it will, therefore, "red top" any remuneration policy or report where executive pension contributions are not aligned to the majority of the workforce.

Non-Executive Directors ("NEDs")

The Principles have been updated to set out investor support for NED fees to reflect the time commitment, complexity and skillset required for their role and the expectations of the board and shareholders, as IA members recognise that NED fees have not always reflected the increased complexity of the role and the time commitment required. Where NED fees are increased, the reasons should be properly explained.

The Principles also acknowledge, for the first time, that a growing number of companies have introduced minimum shareholding guidelines for NEDs.

Key remuneration-related annual report disclosures for 2023:

  • Remuneration Decisions: The Remuneration Committee should explain the approach the company has taken in remuneration decisions for executives to factor in the shareholder and stakeholder experience.

  • Pay Rises: Where the directors have received a pay rise, this should be justified in the context of wider stakeholders.

  • Performance Measures: The Remuneration Committee should explain the issues and different performance drivers that it considers when judging the overall performance achieved with outcomes contextualised in the wider stakeholder experience.

  • Windfall gains: Due consideration of windfall gains and the rationale for any adjustment, or lack of adjustment, for windfall gains should be explained.

  • 2023 Remuneration Policies: Where there are increases in variable pay opportunities under new 2023 remuneration policies, any increases in opportunity should be carefully explained in the context of the business and delivery of strategy.

  • ESG Metrics: Companies should clearly explain the journey they are on to incorporate ESG metrics into variable pay and how they will develop this approach in the future. Companies should also explain how progress against the ESG metrics is measured and performance against these goals should be discussed.

  • NED Fees: Where companies decide to increase NED fees to take into account the time commitment and complexity of the role, the reasons should be properly explained.

For further information on the impact of the Principles and the Letter on your 2023 remuneration decisions and disclosures, please contact our Incentives and Remuneration Team, our Listed Company Advisory Team, or you usual Travers Smith contact.


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