Although there weren’t any significant changes to the ABI’s guidelines on Executive Remuneration, the ABI did release a ‘Position Paper’ to all Remuneration Committees of the FSTE 350 Companies.
The main points are outlined below. However a copy of the paper is available from the ABI website www.abi.org.uk
Bonus Payments
The ABI want performance targets and measures for bonuses to be publically disclosed. If Companies deem this information to be commercially sensitive then historic measures should be disclosed instead.
Bonuses should not be paid when the Company has suffered an exceptional negative event, even if some targets have been met.
If an award vests based on Company performance relative to its comparator group (such as TSR or EPS) any vesting decision should be justified by underlying the financial performance as well and not solely on the Company performance. This should also be disclosed in the remuneration report.
Shareholders should be consulted on bonus policy and payments should be effectively justified. This would also mean that shareholders would have to be consulted when Remuneration Committees contemplate a "material use of discretion", for example a change in performance measures.
If share prices fall substantially, share grants should be scaled back in order to avoid windfall gains.
For leavers, companies should still consider the performance periods and deferral mechanisms that were set when the award was granted; this would help with any clawback provisions.
Salary
When setting employee’s salary a Company should make reference to the specific role and responsibilities involved and reflect the scale and complexity of the business and not just rely on benchmarking. If benchmarking has to be used, this should be only be to help determine the appropriate salary, not just to match to "median” which has lead in some cases to spiralling levels of pay as Company’s chase the perceived median.
An increase in market capitalisation should not directly result in an increase in directors' salaries as there hasn’t been a corresponding reduction when there has been a decrease.
Tax-efficient Schemes
The ABI believe that such schemes should not result in additional cost or higher tax bills for companies.
Introducing such schemes risks harming the reputation of the company and its shareholders.
A Remuneration policy should not seek to compensate directors for higher tax rates. This is a highly topical issue given the imminent increase in income tax rates from 6 April 2010.
This would be relevant for structures such as joint share ownership schemes (JSOPs) and growth share ownership schemes (GSOPs).
The ABI's view here is in line with the IVIS amber reports generally issued for remuneration reports seeking approval for such schemes.
