LGIM’s UK Principles of Executive Pay for 2023

LGIM has recently issued an updated version of its UK Principles of Executive Pay. The Principles remain largely unchanged, however, there are a few changes of note including:

• impact of the cost-of living crisis increases – companies which have given low-paid employees a significant pay increase to assist them during the current crisis should exercise caution if they plan to use the average workforce salary increase rate when setting executive salaries and should consider what impact a similar increase would have on the total pay for an executive taking into account incentives based on a percentage of base pay;
• Windfall gains – for companies stated they would adjust LTIP vesting outcomes for awards granted when the share price was low (e.g. during Covid-19), LGIM expects a detailed explanation on how the remuneration committee applied discretion to ensure appropriate adjustments were made to avoid windfall gains and will vote against the remuneration report if LGIM feels this process was insufficiently thorough or inadequately disclosed;
• ESG – from 2025, LGIM will be escalating its policy on climate change. For remuneration policies put to shareholders from January 2025, to obtain LGIM's support climate targets in line with stated transition goals to reaching net zero and across the full value chain should be included within the long-term plan.  This applies to companies in the following sectors: Autos, Apparel, Aviation, Banks, Cement, Chemicals, Food, Insurance, Mining, Oil & Gas, REITs, Shipping, Steel, Technology, Telecoms and Utilities. The weighting for climate targets should represent at least 20% of the overall LTIP award at these companies. For restricted share plans, one of the underpins should be specific to achieving set transitional carbon reduction targets. In addition, the use of diversity targets is suggested for sectors that struggle to recruit female talent; and
• Restricted share awards and performance conditions – the vesting of restricted shares should be subject to meeting a pre-disclosed threshold level of financial performance. Vesting should take place only if the remuneration committee is satisfied that over the period from grant of an award, the company’s overall performance and the individual’s leadership warrants the release of shares.  In addition, from 2025, for those companies in the sectors with the greatest impact on climate change, vesting will be subject to meeting pre-disclosed transition climate targets.