Glass Lewis has published its 2023 Policy Guidelines ("Guidelines") for the UK, setting out the factors it considers when determining proxy voting recommendations.
The following changes to the Guidelines relevant to remuneration and incentives have been made, all of which are clarificatory in nature:
- Combined incentive (omnibus) plans: Omnibus plans are plans that have a one-year performance period after which a portion of the award is paid out and the remaining portion is deferred, subject to time-vesting restrictions or other performance criteria. Glass Lewis is generally sceptical of using plans instead of a traditional dual STI / LTI structure and will generally recommend shareholders vote against such plans in the absence of a minimum vesting period of three years, with at least part of the award in the form of equity or equity-based instruments. Such plans should have quantitative underpin conditions applicable to deferred awards and, where introduced to replace existing variable incentives, should reflect a substantial reduction in the total target and maximum award opportunity. The company should also provide a strategic rationale justifying the plan.
- Linking executive pay to environmental and social criteria: Companies without environmental or social indicators in their incentive plans should consider providing additional disclosure on how the company's executive pay strategy is otherwise aligned with its sustainability strategy.
- Pensions: The pensions of executive directors should generally be in line with those available to the majority of the wider workforce by the end of 2022 and, if not, a cogent reason should be provided.
- Remuneration Committee discretion: Where a relevant event not envisaged by a company's incentive plans occurs, companies should provide a thorough discussion of the Remuneration Committee's decision on whether to exercise discretion. Inclusion of such information will assist Glass Lewis when it considers any concerns around the exercise of Remuneration Committee discretion.
Finally, it is worth noting that the Guidelines already state that where Glass Lewis has substantial concerns with the performance of the Remuneration Committee, they may recommend that shareholders vote against the re-election of the Chair and/or other members of the Remuneration Committee. This year, Glass Lewis go even further and state that they may recommend voting against the entire Remuneration Committee based on the practices or actions of its members, such as approving large one-off payments, the inappropriate use of discretion in determining variable remuneration, and/or sustained poor pay-for-performance practices.
More information on the Guidelines can be found in Glass Lewis' press release. The Investment Association and LGIM have also published their updated principles and proxy voting guidelines for 2023.
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