IA expects UK RemCos to ‘justify LTI changes’ in 2026

The Investment Association has issued its annual letter to remuneration committee chairs setting out its expectations for the 2026 AGM season. The central message is that companies cannot simply adjust or relax their long-term incentive plans without a clear justification that shareholders will accept, and HR has a key role in making sure that message lands internally with the RemCo and leadership teams. We’ll speak to a share plans expert about what the IA is saying this year and what it means for HR professionals involved in reward and governance.

The IA’s letter matters because it guides how the UK’s largest institutional investors expect listed companies to approach executive pay. There are no changes to the Principles of Remuneration this year, but the expectations have been tightened. The IA is reinforcing themes it raised last year: better explanations, stronger rationales, disciplined use of flexibility, and earlier engagement with shareholders. In other words, flexibility is allowed, but it must be justified, and that justification needs to be specific to the company’s strategy, talent market and performance.

For HR, this goes straight to the heart of how long-term incentives, LTI’s, are designed and communicated. The IA is particularly clear that companies should not introduce more flexible structures, such as restricted share awards or hybrid LTIs, unless they can demonstrate a genuine business need. That will only be acceptable where the company can show it competes in a global talent market or has a specific recruitment challenge. Without that rationale, shareholders are unlikely to approve changes put forward at the AGM.

This is where HR has a key role to play. HR teams are often in the room when RemCo discussions take place, and they need to help leadership understand that shareholders will not simply wave these changes through. If restricted elements are proposed, the IA expects them to be operated differently – typically with a significant reduction in award size – and the business will need to be ready to explain why the approach is necessary and how it aligns with long-term value creation.

The IA is also emphasising the importance of early consultation and is setting up mechanisms to make it easier for RemCo chairs to reach investors before the busy AGM period. HR’s role is to ensure those engagement routes are used well in advance of putting any proposals to shareholders.

So let’s hear more on this. Lynette Jacobs is head of the Share Plans team at Pinsent Masons and earlier she joined me by phone to discuss the IA’s letter: 

Lynette Jacobs: “I think that this year there haven't been any fundamental changes. They haven't gone back into the Principles and made any amendments. What they have said is to pick up on points that they made last year. So they're saying that they do welcome flexibility, but it's very much flexibility in terms of companies being able to justify why they're operating that flexibility. So if, for example, your company has been looking hard to bring in a new CEO, or CFO, and competition is tough and perhaps you're feeling you need to grant them awards under your long term incentive plan, or amend your long term incentive plan, so that as well as just having awards that will only ever become exercisable or vest because strict performance conditions have been met, to also offer at least some that are so called restricted awards, that’s to say, so long as the executive award holder remains with the company for a specified number of years they will get them. You can't just do that. If you're a listed company, you're going to your shareholders, and what the Investment Association is saying is that they will not necessarily say yes to that. They'll only say yes to you moving to that form of arrangement if you can show that's what you really need to bring the right people in. So for example, you have a significant us footprint, or you compete on the global market for talent, but if you're just an average UK company and most of your employees and your businesses in the UK, it's not necessarily going to be acceptable and the shareholders, when you take your amended plan, or your new plan, to your AGM won't approve it. So I think it's understanding that and communicating that within your organisation.”

Joe Glavina: “What should HR do? Is it about internal communication and, if so, who with?”

Lynette Jacobs: “Yes, internal communication and speaking with, sometimes, your who head of HR may be invited to some of the remuneration committee meetings. So if you're invited to remuneration committee meetings, explaining to them – and hopefully this will be something they're aware of – but as I was just saying, they can't just start amending their long-term incentive plan to introduce restricted share awards where the individual doesn't have to meet any performance conditions and must nevertheless still receive the shares under award. They need to think carefully about if they are a company that would be considered appropriate to have that. Also, another thing you need to explain to them, communicate with your remuneration committee, or perhaps your FD, CEO, the other people who will be liaising with the remuneration committee about any changes, is that if you do put those types of awards in place then, again, the Investment Association expect the awards to be operated quite differently, so they normally will look to something like 50% of the value of the award that they would otherwise have for an award that's subject to performance conditions because, in this case, so long as the individual stays there, they will get those shares come what may.”

The Investment Association’s letter to Remuneration Committee chairs which sets out what investors will be looking for in 2026 is available to read from the IA’s website – we’ve included a link to it in the transcript of this programme. Meanwhile, if you would like help to understand how the IA’s expectations apply to your business’s long-term incentive plans please do contact Lynette – her details are on the screen for you. Alternatively, of course, you can contact your usual Pinsent Masons adviser.

- Link to Investment Association’s letter to Remuneration Committee chairs