ABI: Executive contracts and serevance: guidelines from ABI and NAPF

ABI: Executive contracts and serevance: guidelines from ABI and NAPF

ABI: Executive contracts and serevance: guidelines from ABI and NAPF

The ABI (Association of British Insurers) and NAPF (National Association of Pension Funds) have updated their joint statement on executive contracts and severance.

The statement, first published in 2002, assists companies with the design and application of contracts for when senior staff depart. It is also used by shareholders when assessing whether a situation exists where failure is being rewarded.

Peter Montagnon, the ABI’s Director of Investment Affairs, said:

“The original statement has served us well. We are grateful for companies’ responses, but we cannot afford to be complacent. With the economic cycle apparently turning, now is a good time to remember that severance arrangements which reward underperformance damage the standing of business and undermine the integrity of executive remuneration, making it harder to reward success.”

NAPF Head of Corporate Governance, David Paterson, said:

“Disclosure standards on remuneration policy have improved markedly since this statement was first published, as has alignment between management and shareholder interests. The re-publication of the joint statement serves as a timely reminder of shareholders’ expectations when directors are required to address the difficult question of severance terms.”

The new Statement contains eight Principles, including:

. Notice Periods – encouragement is now given to boards to consider making directors’ contracts with a shorter notice period than the standard 12 months.

. Severance Payments – responsibility outlined for Remuneration Committees to justify severance payments and the importance of not rewarding failure.

. Contract Terms – Remuneration Committees should ensure that policy and objectives on directors’ contracts are clearly stated in the Remuneration Report.

. Pensions – the importance of regular reviews by Remuneration Committees is outlined to ensure that these do not lead to unmerited payments in the event of severance.

. Executive commitment – Boards should ensure that executives show leadership by aligning their financial interests with those of the company.

– ENDS –

For the full guidance please see http://www.ivis.co.uk/Guidelines.aspx

Notes for Editors

1. ABI enquiries to:
Alan Leaman 020 7216 7440 (Mobile: 07957 482 330)
Malcolm Tarling 020 7216 7410 (Mobile: 07776 147 667)
Jonathan French 020 7216 7392 (Mobile: 07958 330 480)
Erfan Hussain 020 7216 7411 (Mobile: 07712 841 184)
Kelly Ostler 020 7216 7415 (Mobile: 07968 364 302)

2. NAPF enquiries to:
Mark Brooks 020 7808 1312 (Mobile: 07917 506 683)

3. The ABI is the trade association for Britain’s insurance industry. Its nearly 400 member companies provide over 94% of the insurance business in the UK. It represents insurance companies to the Government, and to the regulatory and other agencies, and is an influential voice on public policy and financial services issues. ABI member companies hold up to a sixth of all investments traded on the London Stock Exchange, on behalf of millions of pensioners and savers.

4. The NAPF is the leading voice of workplace pension provision in the UK. Some 10 million working people are currently in NAPF Member schemes, while around 5 million pensioners are receiving valuable retirement income from such schemes. NAPF Member schemes hold assets of around £800bn, and account for approximately one fifth of investment in the UK stock market.

5. An ISDN line is available for broadcasts.

Copies of all ABI news releases, together with other information from the Association, can be seen on our website http://www.abi.org.uk