Investment Association's Principles Of Remuneration For 2026: What's Changed?

The Investment Association's latest open letter to remuneration committee chairs has a clear message: no changes to the Principles of Remuneration for 2026, but higher expectations as to how companies apply them.

The Principles provide guidance from the UK's leading institutional investor body to UK listed companies on structuring executive pay and were substantially revised last year. The changes signalled a shift towards greater flexibility in pay design, reflecting concerns about retaining UK executive talent, while also emphasising stronger engagement with stakeholders on pay matters.

Although the market has "responded positively" to the revised Principles, the IA reports in its letter that investors want to see stronger rationales, tighter benchmarking, disciplined use of discretion and improved consultation. When preparing for the 2026 AGM season, focus on quality of explanation and alignment between pay and performance if you are looking to increase the likelihood of gaining investor approval.

Make the rationale company-specific

Investors are seeing boilerplate references to "competitiveness" or "attract and retain", without supporting rationale for the proposals. Remuneration committees are expected to set out why the structure or quantum is right for the company's strategy, market position and risk profile, and how the proposed outcomes support long‑term success. Where you're changing structures or increasing opportunity, explain the specific performance context and future value creation you expect.

Use benchmarking, but don't let it drive pay up the curve

Benchmarking can help, but the IA make clear that it's not a trump card. They caution against percentile‑chasing. If you use peer comparison, explain: which companies you chose and why they're relevant; which markets you benchmarked; how you adjusted for size, complexity and performance; and where your executives sit on a pay‑for‑performance basis. If the analysis points to a large "catch‑up" increase, be ready to justify why that's in shareholders' interests, and how any higher quantum improves the link to performance.

Be disciplined with hybrid schemes

Hybrid long‑term incentives remain a sensitive proposition and the IA reports that its members generally remain cautious of them. Investors generally expect hybrids only where a company has a significant US footprint or competes in global talent markets. If you propose a hybrid, show how it fits your business model, capital cycle and strategic delivery, and apply the guardrails for both performance share plans and restricted share plans.

Keep bonus deferral and shareholding discipline

Flexibility exists once executives meet shareholding guidelines, but investors don't expect deferral to be switched off. Investors favor deferral as it supports malus and clawback powers and strengthens alignment with shareholders. If you reduce deferral, be sure to explain the scale of the shareholding, the balance of risk and how governance protections remain effective.

Avoid retrospective changes; justify upwards discretion only in truly exceptional cases

Performance conditions and underpins should typically remain in place for the life of a share award. If exceptional circumstances arise, consult shareholders early, define why the situation is exceptional and explain how any adjustment preserves a strong pay‑for‑performance link.

IA initiatives to improve consultation and timing

Investors expect consultation on material changes and want earlier, better engagement, not a last-minute rush during AGM season. The IA is creating a directory of member contacts to help committees reach the right people and plans to re‑establish collective meetings to allow companies to discuss proposals with a wider group of shareholders. Once available, use these routes to test rationale, benchmarking and scheme design before you finalise.

Non‑executive director pay: keep it fair, not performance‑linked

Independent NEDs should be fairly paid for time, complexity and experience. Paying part of fees in market‑purchased shares can promote alignment. The IA supports the UK Corporate Governance Code in its assertion that performance‑related pay for independent NEDs is inappropriate.

What this means for 2026

We see three key insights for companies from the IA's update. First, invest in the narrative: clearly articulate strategy, performance goals and the pay framework that supports both, with supporting evidence. Second, tighten calibration: ensure measures, targets and underpins are robust, and discourage ratchet effects in the market. Third, plan consultation: map your investor base, share the benchmarking and rationale early, and, where possible and available, use the IA's new communication channels.

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