Example: quiz answers

LGIM S PRINCIPLES ON EXECUTIVE REMUNERATION

SEPTEMBER 2016 LEGAL & GENERAL INVESTMENT MANAGEMENT. LGIM'S PRINCIPLES ON EXECUTIVE . REMUNERATION . As a long-term engaged investor we entrust the board to oversee the company and its management on our behalf. This equally applies to the setting and awarding of management REMUNERATION . We take our voting rights extremely seriously and want to be able to support both the REMUNERATION proposals and the board at your future shareholder meetings. To assist the board in this regard we have developed this summary document of the updated main PRINCIPLES that support our corporate governance and voting policy on EXECUTIVE REMUNERATION . Detailed policy and guidance on EXECUTIVE REMUNERATION is contained within our UK policy on Corporate Governance. Structure of the REMUNERATION Committee The Chairman of the REMUNERATION Committee should have appropriate knowledge of the business to align the REMUNERATION with the strategy of the company. For this reason the person appointed to the role of REMUNERATION Committee Chairman should have served on the board for at least a year prior to their appointment.

SEPTEMBER 2016 LEGAL & GENERAL INVESTMENT MANAGEMENT 1 | P a g e LGIM’S PRINCIPLES ON EXECUTIVE REMUNERATION As a long-term engaged investor we entrust the board to oversee the company and its management on our

Tags:

  Principles, Executive, Remuneration, S principles on executive remuneration

Information

Domain:

Source:

Link to this page:

Please notify us if you found a problem with this document:

Other abuse

Transcription of LGIM S PRINCIPLES ON EXECUTIVE REMUNERATION

1 SEPTEMBER 2016 LEGAL & GENERAL INVESTMENT MANAGEMENT. LGIM'S PRINCIPLES ON EXECUTIVE . REMUNERATION . As a long-term engaged investor we entrust the board to oversee the company and its management on our behalf. This equally applies to the setting and awarding of management REMUNERATION . We take our voting rights extremely seriously and want to be able to support both the REMUNERATION proposals and the board at your future shareholder meetings. To assist the board in this regard we have developed this summary document of the updated main PRINCIPLES that support our corporate governance and voting policy on EXECUTIVE REMUNERATION . Detailed policy and guidance on EXECUTIVE REMUNERATION is contained within our UK policy on Corporate Governance. Structure of the REMUNERATION Committee The Chairman of the REMUNERATION Committee should have appropriate knowledge of the business to align the REMUNERATION with the strategy of the company. For this reason the person appointed to the role of REMUNERATION Committee Chairman should have served on the board for at least a year prior to their appointment.

2 REMUNERATION committees should seek independent advice. Therefore, external advisors, consultants and internal employees advising the committee should be fully accountable to the committee. A large voting opposition (>20%) to the REMUNERATION proposals should not be ignored. The REMUNERATION Committee should: Consider re-tendering the REMUNERATION consultant contracts Publish an explanation for the dissent when disclosing the voting outcomes including what the Board is doing to address concerns The REMUNERATION Committee should consider carefully and be able to demonstrate how they have reviewed the pay policy of the entire workforce when setting pay for the EXECUTIVE team. They should be willing to meet with any employee representatives at least annually to explain how they have exercised this duty. The REMUNERATION Committee should make themselves aware of the views of their largest shareholders, whose pay policies are generally on their corporate websites.

3 LGIM will consider voting against the election of individual board directors where we do not support REMUNERATION for the second consecutive year. LGIM may also vote against individual directors where there are particularly contentious issues. Pay PRINCIPLES We apply a set of simple pay PRINCIPLES when looking at REMUNERATION structures: The structure of REMUNERATION and the payments awarded should be fair, balanced and understandable. This means: fair in terms of what the company has achieved balanced in terms of 1|Page SEPTEMBER 2016 LEGAL & GENERAL INVESTMENT MANAGEMENT. quantum to the EXECUTIVE , employees and shareholders and understandable for the recipient, the board and shareholders Awards should incentivise long-term thinking by management and be aligned to and support the achievement of the business strategy and objectives Executives should have meaningful direct equity holdings while employed and thereafter; buying shares is one of the best ways of aligning the interests of management and shareholders Significant changes to existing REMUNERATION strategy should be subject to a two-way consultation with shareholders prior to the company seeking specific approval via votes Boards should retain ultimate flexibility to apply discretion and sense-check' the final payments to ensure that they align with the underlying long-term performance of the business Transparency in the Annual Report EXECUTIVE REMUNERATION is a board decision, supported by the REMUNERATION Committee.

4 The Chairman should support the process of setting pay and this should come through in the annual report. Companies can build trust with shareholders if they can demonstrate historic restraint, consistency and alignment with shareholders. The board should provide a section in the annual report setting out: Why the outcome of the single figure is appropriate taking account of delivery of KPIs, employee pay and shareholder experience in terms of value created Why the chosen REMUNERATION award level is appropriate for the company. Any explanation should avoid as its main argument comparisons with peer median pay The pay ratio between the CEO's total single figure and the median employee as disclosed in the financial statements Evidence of the exercise of discretion (up or down) over the past 5 to 10 years. We would define discretion as anything that alters the monetary outcome. Disclosure should take the form of a table with a very short summary The breakdown of fees paid to REMUNERATION consultants, between fees for EXECUTIVE REMUNERATION advice and fees for other pay related services to the company Quantum As the EXECUTIVE REMUNERATION landscape continues to evolve to meet the needs of modern corporations, companies must take into account the current social sensitivities around inequality of pay.

5 We entrust the current board to ensure that EXECUTIVE pay is set at an appropriate level to drive positive corporate behaviour and performance. In doing so, the Board should consider the wider impact of EXECUTIVE pay, the general workforce, public perception, the economic climate, and government bodies. Boards should not consider increases to individual elements of REMUNERATION in isolation and should consider the ratcheting effect. The Board should question whether the total package is appropriate for a role of this nature, preferably without looking at benchmark data, sense check. Boards are expected to consider the pay ratios between the CEO's single figure to median employee. Is it sensible in light of the industry in which it operates? Are the year-on-year' changes in the ratio appropriate in light of performance? Salary increases should be in line with the general workforce unless there has been a genuine change to the role with increased responsibilities in which case a phased increase is expected.

6 When reviewing base salary, consideration should be given to the impact of any change on the total package 2|Page SEPTEMBER 2016 LEGAL & GENERAL INVESTMENT MANAGEMENT. We would encourage the reduction of short-term annual bonus levels. 200% of salary should be reserved for the largest global companies Pension arrangements should be reduced over time so that they are more closely aligned with the general workforce The focus on median pay has contributed to the general increase in EXECUTIVE REMUNERATION for all companies with less focus being given to the actual performance of the individual company and absolute pay. For this reason, LGIM discourages the over reliance on, and use of benchmark data as pay schemes vary considerably between companies. If the use of benchmarks is considered necessary, this should only happen periodically, once in three years. When considering the constituents of a benchmark, attention should be given to the relative performance as well as size of the companies.

7 For instance, use the same benchmark to review pay and performance ( TSR), adjust for market cap and fully disclose constituents. Simple and Understandable REMUNERATION plans should be understandable by the recipient, the board, and easily explained in the Annual Report. We will not support a new incentive scheme if it complicates the REMUNERATION structure We advocate the use of only one Long Term Incentive Plan with no more than four performance measures. Long-term is defined as a minimum of three years of performance We will generally oppose any new matching plan or renewal of existing matching scheme Shareholding requirements should be significant, comprise fully owned shares and relate to the size of annual share-based awards. At least half of the shareholding should be maintained for two years post retirement Bonus awards should constitute both cash and share awards with the shares deferred for two to three years Performance Metrics and Targets The board should determine what the right metrics are to deliver the strategy, and what level of stretch in the target is appropriate to deliver the right outcomes for all stakeholders.

8 Metrics should be linked to long-term strategy, stretching but achievable Performance targets should use the reported numbers without further adjustments, save for share buy-backs and other capital changes. Any adjustments should be consistent, explained and reconciled with reported numbers Long term incentive performance targets should be disclosed prospectively and short-term annual bonus targets retrospectively Targets that are commercially sensitive to the business should be disclosed retrospectively, within two years Companies should disclose as many of the bonus targets as possible to highlight the integrity of the target-setting process Strategic/qualitative and personal targets should be fully explained Dividends can be accrued but should only pay out on shares that vest In addition to REMUNERATION committee discretion, clawback and malus should apply to all elements of performance-related pay and be fully explained 3|Page SEPTEMBER 2016 LEGAL & GENERAL INVESTMENT MANAGEMENT.

9 Restricted Schemes The EXECUTIVE REMUNERATION Working Group has suggested the use of restricted shares as one mechanism to reduce complex structures. We do not believe that this structure is right for all companies. Therefore, companies will have to justify why this type of arrangement is appropriate and why the existing arrangement is no longer suitable. For those companies considering adopting a restricted scheme, we would like to provide further guidance as to what would be acceptable to LGIM as a shareholder in your company: The Company should be able to demonstrate a history of sensible approach to REMUNERATION . no high votes against, provide examples where appropriate discretion/judgement has been used Award levels should be reduced by 50% or more of the normal long term incentive grant to take in to account certainty This should be a long-term scheme that is applied through different business cycles Shareholding guidelines would have to be at least 2x salary (higher for FTSE 100 companies) and maintained for at least two years post-exit For leavers, unvested restricted shares should be pro-rated for time and subject to the same vesting time frame and holding requirements as set out above Discretion should be applied to reduce awards if at the end of the holding period the performance of the company and the shareholder experience is not aligned.

10 (See: p23, para. 2 of the EXECUTIVE REMUNERATION Working Group report). Annual bonus targets should be disclosed in full, retrospectively if not in advance Recruitment and Departures Recruitment O A new EXECUTIVE director's REMUNERATION should be set taking into account their level of experience in the role with a view to reaching a market rate over time, subject to performance o New recruits should be encouraged to purchase shares in the company o The use of golden hellos and goodbyes is not supported and should be avoided O The use of buy-out awards is discouraged o Any buy-out awards considered necessary, in exceptional circumstances, should be explained and awarded predominantly in shares o Additional employee benefits of moving residence should have a time limit Departures Except in cases of dismissal for conduct or to avoid payment for failure, share based awards outstanding should be time pro-rated and subject to the same vesting conditions that applied at grant.


Related search queries