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27/02/2017

ABI launches new guidelines on executive remuneration

EXECUTIVE PAY

The Association of British Insurers has published extended and revised guidelines on executive remuneration. In the new guidelines, the ABI, whose members own some 20% of UK listed shares, makes its first specific reference to cash elements of pay including base pay and bonuses.

It has become necessary to expand our guidelines in the light of new legislation providing for enhanced disclosure and giving shareholders a regular vote on remuneration at annual meetings, said Peter Montagnon, head of investment affairs at the ABI.

There is no change in the basic principle that remuneration should be linked to performance but previously the guidelines focused on share incentive schemes as the only aspect of remuneration on which shareholders were specifically entitled to vote."

Now that there is to be a broader vote on remuneration, we have set out some reference points based on the new disclosures which companies are required to make. This will help our members with voting decisions and assist companies by showing them how shareholders are likely to react.

A summary of the new guidelines

The best practice statement on contracts and severance pay, which was published jointly with the National Association of Pension Funds (NAPF) in December 2002, has been incorporated into the guidelines.
Companies should justify any decision to grant base pay above the median for their sector. The guidelines caution that shareholders are likely to oppose cash bonuses paid for the completion of transactions such as acquisitions.
The existing guidelines on share-based incentive schemes are also incorporated with minor modifications reflecting market practice over the past year.

A final word

Institutional shareholders recognise the importance of rewarding success, but they have a duty to individuals who save through them to exercise responsibility as shareholders. That responsibility must include making sure that boards manage remuneration fairly. - Peter Montagnon, head of investment affairs, Association of British Insurers.

Want to know more?

The new guidelines are available on the ABI web site at www.abi.org.uk.

The Association of British Insurers is the trade association for Britain’ s insurance industry with more than 400 member companies providing over 97% of the insurance business in the UK. ABI member companies account for more than a fifth of investments in the London stock market.

Posted 2 January 2003