February Addendum to the Investment Association’s guidelines on executive compensation during the Covid pandemic

March 28, 2021


In April 2020, the Investment Association (IA) published their guidance on shareholders expectations during the COVID-19 pandemic in relation to executive remuneration in UK listed companies. This guidance was updated in November 2020.

In view of the impact that the on-going COVID-19 pandemic restrictions and the lockdown is having on certain listed company’s remuneration committee’s ability to set long term performance targets, on 24th February the Investment Association published an addendum to their earlier guidance focussing on performance conditions for LTIP grants.

Performance conditions

In the addendum, the IA states that remuneration committees will need to consider whether the performance conditions for future LTIP grants are still appropriate in view of the current market environment. While noting that shareholders desire appropriately stretching long term performance conditions, the addendum suggests that remuneration committees may wish to continue to make LTIP awards at the usual time but delay setting performance targets for up to a maximum of six months until the impact of COVID-19 on the business becomes clearer. If it is decided that the LTIP grants are delayed, the best practice of a three-year performance period following grant would be expected by shareholders. In circumstances where this is not possible, remuneration committees may shorten the performance period by up to a maximum of six months with a similar reduction in grant sizes, contingent on the explanation provided by the remuneration committee and provision of sufficient post-vesting holding provisions being in place. The performance conditions should be published by the company as soon as possible after they have been set via an RNS.

In the previous version of the guidance on ‘performance measures’, the IA had maintained that remuneration committees should consider appropriately stretching performance targets, in line with shareholders’ wishes, even if there is a reduction in the performance target range or a wider performance range due to the pandemic. The earlier guidance focussed on avoiding adjustments to compensate executives for reduced remuneration outcomes or which brought about windfall gains as a result of the downturn caused by the pandemic.

MM&K View

We continue to believe that the IA is being a bit unreasonable in its suggestions regarding delayed decisions on performance metrics for LTIPs and that Remuneration Committees should do what they believe is right for the company and its executives and shareholders and explain this through the appropriate channels.

For further information, please contact Nigel Mills or JD Ghosh.

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