Ellason lens on… Glass Lewis’ 2024 UK Benchmark Policy Guidelines

Glass Lewis has recently released its 2024 Proxy Voting Guidelines for UK companies which will apply to General Meetings held on or after 1 January 2024. The updated Guidelines are broadly consistent with those presented in previous years, save for a number of notable clarifications and/or additions in the following areas:

Remuneration relative to peers
Glass Lewis has outlined their expectation surrounding remuneration levels relative to peers. When they assess a company’s remuneration policy, structure and the levels of granted and realised pay, they will take into consideration the company’s own benchmarking peer set, if disclosed, in addition to local and regional industry peers, based on relevant stock market indices, market cap, industry and/or liquidity. They therefore encourage disclosure concerning individual peers selected by the Remuneration Committee when setting pay levels, plus the criteria used. Companies should be prepared to disclose and justify:

• On a business or individual basis, the inclusion of local, European, US or other global peers
• The use of benchmarking against multiple markets, e.g. multiple stock exchange listings, geographical distribution of operations/sales/employees or clear industry-specific pressures in terms of talent attraction and retention
• The decision-making process behind the implementation/non-implementation of pay elements that deviate from prevailing local market practice (e.g. presence and disclosure of performance conditions on long-term awards, size of salary or long-term award levels, implementation of safeguards such as clawback/malus and shareholding requirements)
• They also recognise that the disclosure of CEO pay-ratios to the median (or average) employee pay may be useful in contextualising levels of pay both within a business and within industries.

Ellason commentary: To date companies generally have not been expected to disclose their pay peer groups. In encouraging companies to disclose their own benchmarks Glass Lewis seems to be addressing the on-going ‘big tent’ debate and appears open to non-standard benchmarks, and potentially, non-standard remuneration practices.

Shareholding guidelines
Glass Lewis has included a new section on shareholding guidelines, bringing together elements that were previously within their Guidelines, plus expanding on their expectations.

Glass Lewis states that the adoption and maintenance of minimum executive share ownership requirements that apply for the duration of the executive’s tenure should be set at a number of shares equal to a pre-defined multiple of base salary and built up over a limited number of years from the date of appointment; unvested share awards count towards the requirement only when vesting is not subject to any further performance conditions.

Glass Lewis recognises that additional post-vesting and/or in-post and post-employment requirements may be beneficial in further aligning executive interests and that post-employment holdings should be for a specific period, typically two years.

Ellason commentary: There are no surprises in this new section, with Glass Lewis being aligned with the expectations of the IA for both in-post and post-employment requirements.

Remuneration voting
The Guidelines include lists of indicators that Glass Lewis will consider when assessing both the remuneration policy and remuneration report. New additions to these lists include:

• Pension contribution rates not aligned with the wider workforce
• Proposals for substantial changes with a worsening of the policy’s overall structure without adequate justification/explanation
• Lowered performance targets without justification
• Not sufficiently addressing material shareholder dissent on remuneration practices (either for the policy and/or remuneration report)

Ellason commentary: The new inclusions align with best practice disclosure expectations. Not sufficiently addressing shareholder dissent on remuneration practices is often a key reason cited by proxy agencies for adverse voting recommendations, and the specific inclusion of this within the Guidelines indicates that this will be an area of focus for Glass Lewis going forward.

Remuneration relative to ownership structure
The Guidelines have included an expectation that, where an executive owns (or directly controls) more than 10-20% of a company’s issued share capital, such executive would not participate in any equity incentive schemes offered to other executives unless a cogent rationale is provided. The updated Guidelines have been expanded to include factors that would mitigate concern if an award is granted to a significant shareholder, including (i) the use of challenging targets across a diverse set of performance metrics to govern vesting; (ii) disclosure of feedback from shareholders on the topic; (iii) a clause stipulating that the significant shareholder will not vote or will abstain from voting on the relevant proposal; and (iv) commitment that shareholder dissent expressed on the proposal will be taken into account.

Ellason commentary: Although concentrated ownership is rare, the inclusion of these factors offers insight into the type of disclosure and justification Glass Lewis requires, and highlights they are open to rewarding significant shareholders with further equity.

Please do not hesitate to contact any of the Ellason team should you wish to discuss this issue further.