The UK National Association of Pension Funds (NAPF) has issued two updated documents. The first is the 2013 version of its Corporate Governance Policy and Voting Guidelines and the second the final form of the document “Remuneration principles for building and reinforcing long-term business success”, published in conjunction with Hermes and major pension funds.

Although the guidelines cover corporate governance generally, several of the amendments from the 2012 version relate to remuneration issues. These include:

  • remuneration policy should be put to a vote once every three years, rather than annually,
  • the binding vote on remuneration policy places the onus on shareholders to explain if they vote against,
  • an automatic vote against, regardless of any explanation given, would likely be triggered by bonuses that are “one-off”, pensionable, guaranteed or discretionary, benchmarking too frequently (more often than every 3-5 years), or weak or inappropriate performance targets.

So no surprises here really – these are pretty much in line with the consensus.

There is also a new expectation that companies will be able to demonstrate that they comply with the remuneration principles. These have been finalised from the draft principles published early this year, after input from the chairmen and remuneration committees of about half the companies in the FTSE100. There are now five principles as opposed to the previous four, three of them remaining unchanged. The new ones are:

  • any discretion in remuneration policy approved by shareholders must be used to ensure that rewards are commensurate with company performance and
  • companies should have regular dialogue with investors about strategy and long-term performance.

These changes emphasise the increased onus on remuneration committees to justify their decisions with respect to awards and benefits in a long-term context.