The 5th of November might have been fireworks night in the UK but there were no big bangs when the Association of British Insurers released its revised Principles of Remuneration, which set out the ABI’s expectations as to how UK incorporated companies deal with remuneration issues. Of the amendments included in the 2013 update is the ABI’s confirmation that it expects companies to set their remuneration policies so that shareholder approval is needed only every three years. Quite how that will work, not least because of the ABI’s tendency to update its own guidance annually, remains to be seen.

The appendix on the new remuneration reporting arrangements that apply to UK incorporated listed companies provides pointers on what shareholders are expecting and predictably endorses the GC100 guidance (see our alert on that guidance  here). The views the ABI offers on the practical aspects of the reporting arrangements should not alarm any companies currently preparing their reports under the new regulations. However, a couple of points to note:

  • the ABI expects remuneration policies to take effect from the meeting at which shareholder approval is obtained; and
  • shareholders will not support excessive limits for the maximum remuneration paid to a new director. Any significant differences from the normal policy will again need to be clearly justified.

The other main changes to the Principles are:

  • At last, a clear explanation of exactly what “malus” and “clawback” are. Given the terms have been used interchangeably by some parties, the clarification is welcome. The lack of clarification on how such provisions should be implemented is not, however, touched on. The ABI does accept that malus based adjustments can be “triggered” on a broader range of circumstances than clawback.
  • Confirmation that, when establishing which shares should count toward shareholding guidelines, unvested shares should only count where the vesting is not subject to any further performance or other conditions (including continued employment).
  • A slight step-back in respect of environmental, social and governance objectives, which should only be targets for variable remuneration “if they are material to the business and quantifiable”.
  • An update on schemes where performance is measured before grant. These are discouraged and, in addition to the long holding periods and significant shareholding requirements that were previously required, shareholders also now expect such awards to be of a much lower value with clear, advance disclosure of the performance measure.

Overall, the amendments to the Principles are not a huge rocket. However, given the changes that have recently taken place to executive remuneration disclosure and reporting requirements in the UK, it was always likely that the real fireworks, if any, will start imminently, as the first companies that are required to comply with the new regulations will shortly publish their annual reports.