Institutional Shareholder Services (ISS) has released updates to its voting guidelines for 2025, effective for shareholder meetings from 1 February 2025 onwards. In the following summary, WTW focuses on the changes related to executive compensation and Board diversity. You can read more in the official publication from ISS.
There are no changes relating to remuneration for the Continental Europe policy.
The proposed changes for the United Kingdom (UK) and Ireland policy are somewhat more significant, taking into account the debate on pay competitiveness and the recent update of the Investment Association (‘IA’) Principles of Remuneration. The main changes are as follows:
The main change in relation to Board Diversity is to clarify that the Financial Conduct Authority (FCA) requirement is for companies to report against targets, as opposed to actually meeting them. However, ISS note that investors do also expect progress against the targets.
ISS have acknowledged the debate on pay competitiveness and the recently updated IA Principles. ISS emphasizes that each company has its own specific circumstances, and executive compensation should be reviewed on a case-by-case basis, provided there is clear disclosure and a rationale supporting shareholder interests and value creation.
However, ISS have taken a somewhat more conservative position and they have, for example, been less explicit than the IA in their support for the introduction of hybrid long-term incentive arrangements. The ISS update does not reflect the potential flexibility discussed in the IA Principles for the level of bonus deferral to be reduced where shareholding guideline levels have been met – though we understand that their position is that this may be considered acceptable as long as other shareholder alignment features are sufficient.
The debate on pay competitiveness will surely continue in 2025 and we anticipate that another round of companies will follow those which made bold moves on executive pay in 2024. The responses of the proxy agencies to this changing landscape will continue to evolve. WTW will keep you up to date with developments as they occur.
If you have any questions or would like to discuss the implications of the guidance on your executive compensation decisions, please contact one of the below.
