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Article | Executive Pay Memo – UK

What are investors thinking about ahead of the 2023 AGM season?

By Katie Johnston and Alex Little | December 19, 2022

This article summarises the results of interviews with institutional investors across Europe on their views on executive remuneration ahead of the coming 2023 AGM season.
Executive Compensation

WTW has recently carried out an exercise of interviewing a significant number of institutional investors across Europe on their views on executive remuneration ahead of the coming 2023 AGM season. This article summarises the key themes highlighted during these interviews.

It is worth noting that, while there were many areas of general consensus, there were also areas where different investors had significantly different – even sometimes contradictory – perspectives. For example:

  • Some investors thought it was critical for companies to reflect ESG performance in executive incentives but others expressed some cynicism and thought this was 'greenwashing'
  • Some emphasised the need to align executive pay outcomes with defined stretching performance targets, whilst an opposing view would prefer alignment to be provided purely by significant shareholding requirements
  • One view was expressed that it was critical for executive incentives to have a high weighting based on TSR performance to directly align with the shareholder experience, whilst another investor thought the measure is overused

These different perspectives highlight the importance of companies knowing the specific preferences of their particular shareholder base and thoughtfully engaging with investors when making significant executive pay decisions.

Wider stakeholder experience

There was general consensus that in the context of current high levels of inflation, companies should be exercising restraint in relation to executives and focusing instead on pay for the wider workforce – in particular the lowest paid employees most affected by increases in the cost of living. Many of the investors we spoke to raised this as the key perspective from which they would be looking at companies in the forthcoming AGM season and it will be critical for remuneration disclosure to set out in detail what they are doing for employees.

In relation to salary increases, ISS have recently amended their UK & Ireland voting guidance to emphasise that adjustments for executive directors should ideally be lower than those for the wider workforce (rather than their previous request for alignment). Many of the investors we spoke to agreed with this position, though the view was also expressed that, as long as executive increases were no more than the workforce average, this was sufficiently restrained.

Pragmatism about target setting but a harder line on use of discretion

A number of investors stated that they empathise with the significant challenge facing companies in setting incentive targets in light of the uncertain macroeconomic climate. These investors said that they were open to companies taking approaches such as setting targets which are lower than in previous years or using wider ranges, as long as this was accompanied by clear disclosure setting out the rationale and process used to determine targets. Consideration would be given on a case by case basis.

However, there was generally a harder line taken on companies considering adjusting in-flight targets or exercising upwards discretion on incentive outcomes. Such discretion would generally not be acceptable unless accompanied by very compelling rationale. The impact of the general economic climate or the situation in Ukraine would not generally be enough of a reason for such discretion to be acceptable. The issue of long-term incentive awards made at low share prices in 2020 as a result of the initial impact of COVID-19 was also raised consistently. Investors generally expect companies to clearly disclose the approach that they take to assess whether or not the vested value included an unearned windfall for executives and apply downwards discretion as appropriate. Investors did not have a shared view on the process for or appropriate size of such an adjustment, instead leaving this for company judgement and encouraging clear disclosure of the rationale for any decisions made.


There was recognition from all investors we spoke to that the issue of including ESG (especially environmental) metrics in executive incentives is a current hot topic. However, there was a significant range of opinions – from one investor which stated that they would be reluctant to invest in any company which did not have a strong emphasis on carbon emissions and related targets in executive arrangements to another which stated that they were cynical about potential greenwashing and sanitising of executive pay packages.

Investors are not prescriptive on the precise metrics to be used or whether they are included in short or long-term incentives (with the exception of LGIM – see below), with most stating that it is for companies to decide what is most appropriate. However, there continues to be an expectation that targets should be rigorously defined, quantifiable, measurable and closely aligned with the company’s overarching sustainability strategy. Disclosure should clearly explain why the metrics used are material for the business.

There was a range of views on the appropriate weightings for ESG metrics, with figures between 10% and 30% mentioned, though most investors thought that this is a point for companies to decide depending on their specific circumstances. A few investors are more prescriptive – for example, LGIM stated in their recently updated UK Principles of Executive Pay that, to gain support for a Remuneration Policy (from 2025), companies in the most relevant sectors will need to include a weighting of at least 20% in their LTIP for a climate-related metric in line with a stated goal of transition to a Scope 1-3 net zero position.


Investors generally emphasised the importance of clear disclosure in how they interpret company approaches to executive pay. Different markets across Europe are starting from different points and so have more or less room for improvement but there is a general expectation that the direction of travel should be more transparency and explanation. There was agreement that a company which clearly set out context, detail and rationale for executive pay decisions would be more likely to receive the benefit of the doubt in terms of AGM voting than if this was not the case.


As always, actual voting results in the first part of the AGM season will test the currently more theoretical positions of investors. We expect that in a number of key areas (wider employee treatment, considerations of windfall gains, ESG metric disclosure, etc) precedent will be set in the first publications of the season. We will be monitoring these outcomes to understand direction of travel on the most topical voting issues and provide updates in due course.

If you have any questions or would like to discuss the implications of any of the above on your executive compensation decisions, please contact Richard Belfield or Alex Little.


Senior Director, Executive Compensation & Board Advisory

Director, Executive Compensation (Dublin)

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