AGM Season 2023 - Finding a way through the rabbit warren

According to Chinese tradition, 2023 - the year of the Rabbit - should be calm and gentle. If you’re a Remco Chair, then you might be hoping fervently that this applies to the upcoming AGM season. In reality, you might just need more than the lucky rabbit, and you’ll definitely need a level-headed approach.

It’s always going to be a bit of a tightrope being the Chair of a Remco, but in a year where there is a backdrop of increasing energy bills, rising inflation and higher interest rates, any decisions that result in even the perception of handing a disproportionate share of the rewards to executives, is at best going to seem insensitive, and at worst, tone deaf. Remco Chairs will want to make sure decisions on all pay outcomes stand up to scrutiny and are explained with the highest levels of clarity.

When it comes to assessing performance, metrics cautiously set three years ago in 2020 just as a period of huge uncertainty was about to unfold, could now risk being perceived as “too soft”, particularly if the business has fared better than expected. This comes alongside calls to shave back vesting outcomes that have arisen due to “windfall gains” where grant sizes in 2020 were not cut back despite falls in the share price, deferring the decision instead to the time of vesting. Untangling how much is actually “windfall” will need to be distinguished from genuine business success. Businesses that received government support, will especially need to ensure solid grounds for LTIP pay-outs that appear to be out of kilter with the experience of the rest of the workforce.

Executives that took pay cuts during the pandemic may feel more than a tinge of frustration, when they might now be expecting some pay-back for their efforts in pulling the business through a tough period at personal expense. And given the current economic climate, investors also expect executive base pay increases for 2023 to be below general workforce pay increases. This feels right, but Remcos will be acutely aware of the competition for talent from Private Equity and US organisations and may face a dilemma.

If Remco Chairs are feeling the need to tread carefully, they will want to demonstrate they have applied sound judgement, clearly mapping out the process in reaching decisions, particularly where discretion has been applied, whilst considering the wider business, societal and shareholder concerns.

Coupling this “look-back” with the fact that 2023 is a year when many companies seek to bring their “forward looking” Remuneration Policy back to a binding shareholder vote, it’s going to be more important than ever to articulate the company’s thinking in the areas where there will be intense scrutiny, and most Remco Chairs will already have been considering these for some time.

So, with all of that in mind, ahead of the 2023 AGM season, below is a reminder of the substantive changes relating to remuneration, for the main Investor Guidelines, namely those of The Investment Association, and the Proxy Advisors; ISS and Glass Lewis.

It’s worth noting that ISS is increasingly influential for the FTSE, particularly given international levels of ownership – last year, for the FTSE 100, approximately 80% of companies who received an “Against” recommendation went on to experience a significant vote against (i.e. <80% support) *. This compares to 36% of companies who were red-topped by IVIS (part of the Investment Association (IA) – though the IA is still very influential in setting expectations for pay practices.

*Source: PwC: 2022 End of Season AGM Update, November 2022

Remco chairs will want to consider each area carefully, to ensure that they are using every opportunity to clarify and explain each decision. Even the best of intentions can be scuppered by insufficient or lack of clear disclosures. If there’s a good story to tell, then 2023 is the time to tell it.

Below is an overview of the main changes for 2023 in relation to remuneration from The Investment Association, ISS and Glass Lewis. A number of large institutional shareholders have also published their own guidelines (eg LGIM) but these are not considered further here


The IA published the annual update to their Remuneration Guidelines in November 2022. The Guidelines themselves have had only modest changes, with the intent more clearly spelled out in the cover letter to Remuneration Committee Chairs. The main areas of focus for 2023 are:

Cost of Living, Inflation, and the Stakeholder Experience: with the cost-of-living crisis and widening inequality never far from the headlines, the IA recognise that executive remuneration is seen by some commentators as a barometer of the state of corporate governance in the UK as a whole. In the 2023 guidelines they urge general restraint in any increases in variable pay opportunity with careful explanations, and judgement in assessing performance outcomes (in the context of the wider stakeholder experience) and setting forthcoming targets.

Most notably, given the current inflationary environment and the ‘multiplier effect’ on the overall level of remuneration, even for small percentage increases to salary, they consider that in 2023 additional restraint should be shown and encourage committees to consider increases below the rate of salary increases given to all employees. All salary increases will need to be justified in the wider stakeholder context.

Windfall gains from 2020 LTIP grants: during the pandemic, the IA guidance stressed the need to cut the level of LTIP grants where the share price had fallen significantly, or to review the vesting outcomes in this context at the time of vesting to ensure that gains are not inflated. In 2023, many Remuneration Committees will need to review these decisions and adequately explain any discretion that has been used so that participants do not benefit, with clear explanations as to why a reduction in vesting is appropriate. In additional if no adjustment is made, the committee must explain clearly why.

ESG Metrics in Executive Remuneration: The IA recognise that there are varying approaches to incorporating ESG measures into remuneration and that many companies are still considering the best way to reflect strategy and material ESG risks and opportunities into their variable pay programs. It will be expected that companies articulate this journey and explain progress, and for ESG measures to be objective, quantifiable and measurable.

NED Fees: The IA explicitly recognises that NED roles have become increasingly complex, and that fees for committees and sub committees should adequately reflect the time commitment, complexity and the level of skill required but any increases should be properly explained.

Approach to Pensions in 2023: as previously advised in prior years, the IA will automatically red-top any non-compliance for not aligning pensions for executives to the majority of the workforce pension,


ISS updated their proxy voting guidelines for the UK and Ireland in December 2022. Not many changes for Remuneration, other than a clarification around the language on executive annual salary increases. For 2023, ISS expects annual executive salary increases to be “lower proportionally” than increases across the broader workforce – which is a change from “in line with” broader workforce changes. This shift in language mirrors the IA advice above, recognising that such a pattern would lead to a widening of the gap between total opportunity available to executives compared to that of the average employee. The change modifies the policy language to clarify that keeping directors' annual salary increases low and ideally lower proportionally than general increases across the broader workforce is considered to be good market practice.


Glass Lewis updated their guidelines in November 2022. Changes in relation to executive remuneration where a vote against could be expected (if attention is not paid to these areas) are as follows:

Pensions: guidelines have been updated to clarify that pension provisions for executive directors, both those newly appointed and incumbent executives, are generally expected to be in line with those available to the majority of the wider workforce by the end of 2022, absent a cogent rationale.

Combined Incentive Plans: A new section has been added to the guidelines to clarify Glass Lewis’ view on combined incentive plans, or omnibus plans. These are plans where instead of separate short term and long-term incentive plans, the elements of a bonus and long-term incentive plan are combined, and awards are subject to short-term performance (typically one year) with a portion deferred, subject to time-vesting restrictions or other performance criteria. Glass Lewis consider that where these plans are included in executive remuneration policies, they will generally vote against, unless the plan has:

  • a minimum vesting period of three years,
  • at least part of the award in the form of equity or equity-based instruments,
  • quantitative underpin/gateway conditions that apply to deferred awards, and
  • some strategic rationale provided for the plan.

Further, where a company is amending its incentive structure to adopt a combined incentive plan while removing existing variable incentive plans, Glass Lewis generally expects a substantial reduction in the total target and maximum award opportunity, appropriately reflecting the reduction in the risk profile of the plan.

Linking Executive Pay to Environmental and Social Criteria: shareholders of companies that have not included explicit environmental or social indicators in their incentive plans should provide additional disclosure on how the company’s executive pay strategy is otherwise aligned with its sustainability strategy.

Remuneration Committee Discretion: companies should provide “thorough discussion” of how the remuneration committee has considered significant events that have occurred to outline clearly how, and why, a decision was taken to exercise discretion, or refrain from applying discretion over incentive pay outcomes.

Caitriona Flynn, vice president at Rem.n, has more than 17 years professional experience across a broad client base of FTSE 350, AIM listed, private companies and not for profit, where roles have involved liaison with Remuneration Committees, HRD, and C - suite. A qualified Chartered Accountant by background, she spent her early career at PwC and then at Arthur Andersen, before specialising in Executive Compensation and Reward. Caitriona takes a lead role at Rem.n on the remuneration governance and regulatory aspects of senior level pay.

Pearl Meyer agreed to divest its London operations on June 17th, 2022. Simon Patterson (Managing Director) and his team now own Remuneration Associates Ltd – an independent consulting firm working with clients around the world, which builds upon the legacy of the London operation.


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