By Marcus Leach

UK boardrooms are being given the clearest indication yet on executive pay and effective performance by institutional investors, with the publication of two reports from the Association Of British Insurers (ABI).

The ABI’s first report on Board Effectiveness and the revised Principles of Remuneration both help companies to better understand the views of institutional investors on effective boardroom performance and executive pay.

The ABI report on Board Effectiveness focuses on three key issues that help make an effective board:

• Board Diversity — including women in the boardroom
• Succession planning — board engagement in planning for succession for all senior management
• Board evaluation — including discussions on risk management, corporate strategy, geographic markets of operation and reporting

It highlights existing best practice amongst FTSE 350 companies and makes clear that greater progress and transparency on these issues is needed to ensure an effective board and a successful company.

The revised Principles of Remuneration are the latest update to ABI guidance which has evolved over thirty years. They address investors’ renewed concern on executive pay. ABI members believe that non-executive directors have a key role to play in determining the appropriate remuneration and shareholders should be actively involved without micromanaging companies.

Key principles of the guidance show that company boards should:

• Support appropriate reward for exceptional performance
• Strongly resist any payment for failure
• Understand that excessive or undeserved remuneration undermines the efficient operation of the company, adversely affects its reputation and is not aligned with shareholder interests
• Not engage in crude benchmarking when seeking to justify increases

“Effective boardrooms should be the powerhouse of the UK economy," Otto Thoresen Director General, ABI said.

"The board effectiveness report and long standing remuneration guidelines represent UK best practice. They aim to ensure that remuneration is linked to performance and shareholders’ interests are protected.

"We continue to favour evolution, building on what we have learnt from recent years to make sure companies act in shareholder’s interests and deliver long term economic growth that will benefit society as a whole.”

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