LGIM's Principles on executive pay for 2023

LGIM has recently updated their Principles of Executive Pay for the 2023 AGM season.  There are a few significant updates, particularly regarding the use of ESG in incentives, as well as guidance on how to navigate the current economic environment. uk-principles-of-executive-pay-lgim.pdf

 Executive Director salaries and cost-of-living increases

 If companies have awarded significant pay increases to lower paid workers to help with the cost-of-living crisis, remuneration committees should be cautious if they plan to use the average workforce increase when setting executive salaries.

 Addressing ‘windfall gains’

Where companies have already stated they will adjust vesting outcomes for LTIP awards granted when share prices were low, LGIM expects to see a clear explanation of the Remuneration Committee’s decision-making process and will vote against the remuneration report if it does not believe this process has been sufficiently thorough or transparent.

 ESG measures

LGIM has specific environmental guidelines for companies in the following sectors, which it believes have the greatest impact on climate change: autos, apparel, aviation, banks, cement, chemicals, food, insurance, mining, oil & gas, REITs, steel, technology, telecoms and utilities.

 LGIM’s more general ESG recommendations include the use of diversity targets in sectors that struggle to recruit female talent and the avoidance of employee engagement metrics. LGIM prefers employee retention measures (where appropriate), as it believes that employee engagement is something a well-governed company should be doing anyway.

 Restricted stock

The vesting of restricted stock awards should now be subject to meeting a threshold level of financial performance that is pre-disclosed; and, for companies in those sectors with the greatest impact on climate change, to meeting pre-disclosed climate transition targets (from 2025).