On 12 November 2025, the Investment Association (IA) published a letter to Remuneration Committee Chairs in which it confirmed that it will not be making any changes to its 2025 Principles of Remuneration for the 2026 AGM season. 

The Principles were substantially amended in 2025 to give companies more flexibility to adopt pay structures that are less prescriptive and more tailored to the relevant company’s strategy and objectives. In the letter the IA did take the opportunity to comment on certain areas it feels can be improved. We have summarised the key takeaways on each of these below. 

Company specific rationales and explanations

Companies should engage in meaningful dialogue with investors on why a particular approach to remuneration that has been taken is critical. The IA expects clear, specific rationales for proposals. Remuneration committees should avoid generic, boilerplate justifications.

Benchmarking and peer comparisons

The Principles place emphasis on assessing remuneration levels in light of the company’s specific context. Accordingly, the IA cautions against relying on benchmarking alone to justify remuneration increases. Where benchmarking is used, remuneration committees should provide a detailed explanation of their approach. The overriding consideration is how any increase in pay will reinforce a robust link with performance.

Hybrid long-term incentive schemes

While the Principles permit the use of hybrid remuneration structures, the IA remains cautious about their use. In practice, the IA generally expects such schemes to be used only by companies with a substantial US footprint or those competing for global talent. Any proposal should be underpinned by a thorough, company‑specific rationale and early engagement with investors is encouraged.

Bonus deferral and shareholding

The Principles accept that a proportionate reduction in bonus deferral may be appropriate where executives have built substantial shareholdings. However, the IA does not expect the deferral to be fully removed where shareholding requirements have been met as it continues to play an important role in supporting malus and clawback.

In-flight awards and discretion

The IA reiterates its long-held position that retrospective changes to performance and vesting conditions should be avoided, as they undermine the integrity of the relevant scheme. If remuneration committees intend to exercise their discretion to make such alterations, they should be fully supported by shareholders and a robust justification and explanation must be provided.

Consultation process

Early and meaningful consultation on material changes remains essential. The IA has proposed two future initiatives to enhance the consultation process:

1. it will create a directory of member contacts for remuneration consultations; and

2. it will re‑establish collective meetings to support broader engagement.

Themes for the 2026 AGM season

The IA will look for remuneration committees to provide clear and detailed explanations of their decisions, demonstrating a strong link between pay and performance. Given ongoing geopolitical and cost‑of‑living pressures, investors will review how decisions reflect outcomes for employees and other stakeholders. Disclosures should therefore set out how wider stakeholder experience has been considered in the company’s particular setting. 

Non-Executive Director remuneration

Finally, the IA confirms that independent non-executive directors should be paid appropriately for time, complexity and experience. Share ownership is encouraged, including paying a portion of fees in market‑purchased shares. In line with the UK Corporate Governance Code, performance‑related pay is not appropriate for independent NEDs.

Some thoughts

Feedback from the IA on how it sees the revised Principles to be applied in practice is helpful. Some of the commentary does however seem to narrow some of the flexibility previously provided for in the Principles – or at least put more emphasis on which justification would be appropriate. For example, on the face of it, the ability to use hybrid schemes seems to be more limited when compared to restricted shares plans. It remains to be seen whether this will be reflected in practice. 

We expect that future commentary on the Principles to be included within the Principles themselves to save companies from revisiting past letters to fully appreciate the IA’s position which evolves from year to year.