Governance in Motion: Important Updates Shaping the 2026 AGM Season

The Investment Association (“the IA”) made no changes to the Principles of Remuneration. However, in the IA’s letter to Remuneration Committee Chairs, the following areas were highlighted:

• Rationales should be tailored, avoid boilerplate language, and clearly describe why the proposals are right for the business
• Benchmarking should be robust, transparent, contextualised, and consider pay for performance. Market practice alone is not enough to justify an increase
• Hybrid schemes should be backed by a strong link to strategy and are generally only considered appropriate where there is a significant US footprint and/or competition for global talent
• Bonus deferral can be reduced once shareholding guidelines are met but complete removal is discouraged as it could impact the operation of malus and clawback
• Discretion used to adjust in-flight awards is only appropriate in exceptional cases and requires robust rationale, including demonstrating how the adjusted outcome provides a strong link between pay and performance
• Non-Executive Director (NED) compensation should be appropriately positioned and reflect the time commitment. NEDs may receive a portion of their fee in shares, but performance-related pay is inappropriate
• Wider workforce and stakeholder impacts should be considered by remuneration committees when determining executive pay, particularly amid ongoing economic and geopolitical uncertainties
• Improving consultation with shareholders remains important and, in support, the IA will introduce initiatives that make engagement with shareholders more efficient

ISS released its 2026 benchmark policy updates, with small changes proposed to the UK and Ireland Proxy Voting Guidelines:

Minor changes were proposed to the UK and Ireland Proxy Voting Guidelines, such as a clear definition of in-person shareholder meetings and the rationale for designating someone as a “good leaver”

Glass Lewis is adapting its business model and has committed to changing proxy voting practices. This includes:

• Tailored recommendations: The one-size-fits-all model no longer meets the needs of a diverse client base. Starting in 2028, Glass Lewis clients will receive bespoke recommendations that reflect individual investment philosophies and stewardship priorities
• Glass Lewis will register with the US Securities and Exchange Commission as an investment adviser to enable regulatory oversight and improve trust

The US Federal Trade Commission is investigating ISS and Glass Lewis for potential antitrust violations.

• The probe is focusing on their competitive practices and how they advise clients on controversial shareholder proposals, particularly around ESG issues
• The news comes on the heels of growing criticism from high-profile executives such as Tesla’s Elon Musk and JPMorgan’s Jamie Dimon, who have questioned the influence and competence of proxy advisors
• The White House is also exploring measures to limit the influence of proxy advisers in the form of at least one executive order

Following the publication of the Regulation Action Plan in March 2025, with the aim of re-energising the regulatory system, the Government provided a six-month progress update.

• It confirms that NEDs may be paid in shares but not through those that introduce a performance-related element
• The Government also worked with the IA to discontinue its Public Register, which tracked companies that received a vote of less than 80% on any shareholder meeting resolution. This is one of the changes we called for in a recent post, Farient Calls for Overhaul of UK Remuneration Market
• Additionally, corporate reporting will be simplified by exempting certain private companies and subsidiaries from producing strategic and directors’ reports

The Prudential Regulation Authority (PRA) and the Financial Conductor Authority (FCA) published a joint policy statement on updates to the remuneration rules for UK banks, building societies, and PRA-designated investment firms, following feedback on the consultation paper from November 2024.

The updates are aimed at a better alignment between the financial incentives of those with a material impact on the firm’s risk profile, the long-term interests of the firm, and the UK economy. They also enhance the attractiveness of UK pay packages to Material Risk Takers (MRTs).

The changes apply from 16 October 2025 for new performance years, with optional application to ongoing and unvested awards.

• Easing of bonus deferral requirements – single deferral period of four years, with annual pro-rata vesting from grant now allowed. Deferral of 60% now only applies to variable pay above £660k, with 40% applying to lesser amounts
• Removal of retention periods – this applies to deferred instruments; there is no change to the 12-month retention period required for upfront instruments
• Change to instrument requirements – removing the requirement of equal splits between cash and instruments, giving firms more flexibility
• Other updates relate to interest or dividend payments on deferred remuneration, MRT identification criteria, and increases to individual proportionality limit

The FRC published guidance to help signatories transition to the updated UK Stewardship Code, effective 1 January 2026.

• The new UK Stewardship Code aims to reduce the reporting burden, increase flexibility, and streamline the principles
• To help with that transition, the FRC’s publication offers practical guidelines and real-life examples of effective reporting under the 2020 Code
• Signatories can also find suggestions of what to include in their reporting and ways of explaining their selected stewardship approach

Ofwat published Performance-Related Executive Pay 2024–25 Assessment.

• The report from the Water Services Regulation Authority focuses on the effectiveness of the new rule on performance-related executive pay (PRP), introduced in June 2025. The rule, together with the PRP cost recovery mechanism, ensures that bonuses not meeting Ofwat’s expectations are not funded by customers
• For 2024/25, the rule was triggered by six water companies due to performance failures such as pollution incidents. All complied with the rule correctly, i.e. by not rewarding any relevant performance-related pay to their directors. This resulted in blocking more than £4m of potential bonuses
• Additionally, Ofwat is consulting on new requirements for full reporting of pay received by directors from group companies