New Year Forecast: Our Top 5 Predictions for Remuneration Committees

2025 was a year of change, with significant transformation in the executive remuneration landscape. Many of the developments we outlined in our 2025 predictions article materialised:

• Increase in commercially led decision making: 25% of new Remuneration Policies in the FTSE 350 changed the structure of incentives, demonstrating an increase in companies adopting bespoke pay structures, driven by what works commercially for the business. The use of positive discretion has also become more prevalent, with three companies applying positive discretion to bonus outcomes and two to LTIP awards.
• Adoption of hybrid incentive plans: 50% of companies that made structural changes as part of their new Policy implemented a hybrid LTIP (consisting of annual grants of performance shares and restricted shares). We believe this trend will continue in 2026.
• Greater flexibility in governance rules: the discontinuation of the Investment Association (IA) Public Register was recently announced, which is one of the governance changes we called for over the last year.
• Uplift in quantum: 58% of new policies proposed an incentive increase. Of those companies that proposed a new Policy, 41% increased incentive opportunities by more than 100%, with the median LTIP increase being 150% of salary for FTSE 100 companies.
• Contentious AGM season: The 2025 AGM season saw an increase in the number of companies receiving a vote below 80% for their Remuneration Policy votes. In addition, two companies withdrew their proposed policies due to shareholder concerns.

Farient believes that these trends will continue into the 2026 AGM season, when we expect more than half of FTSE 350 companies to put their Remuneration Policies to a shareholder vote. Against the backdrop and the ongoing debate around UK competitiveness, we have set out our predictions for the 2026 AGM season below:

1. Hybrid Adoption Will Continue to Increase

Hybrid incentive plans are expected to remain the most common emerging approach in the market. This is already evident, with one of the first 2026 Policies already proposing a hybrid. With more companies now adopting hybrid plans, we expect their use to increase further this year.

Hybrids balance performance alignment with retention by combining performance share plans (PSPs) with restricted share plans (RSPs), allowing PSPs to remain genuinely performance-based and focused on rewarding outperformance. In contrast RSPs provide a safety net during periods of cyclical, industry-specific, or broader economic challenges. Implementing a hybrid would be suitable where companies face sustained uncertainty, seek closer alignment across senior employee populations, or look to remain competitive in global talent markets. While shareholder caution remains, we expect familiarity with these structures to increase where proposals are clearly explained and aligned with company strategy.

As hybrid plans become more established and better understood within the UK market, investor sentiment appears to be evolving. The IA has stated they assess proposals on a case-by-case basis, focusing on what is right for the company. Accordingly, Remuneration Committees considering a hybrid plan should be clear about why the approach is appropriate for their specific circumstances, rather than relying on using generic ‘boilerplate’ rationale. As such, a strategy-led approach is vital when making remuneration decisions, as is ensuring that the disclosure reflects the strategic drivers behind the approach.

ISS has opposed proposals that introduce an increase in the overall quantum alongside the adoption of a hybrid structure. This suggests that opposition has been driven not by the hybrid structure itself, but by concerns around increased quantum combined with increased certainty. By contrast, hybrid proposals that maintain overall quantum and apply a 50% haircut when introducing an RSP have received more shareholder support. This highlights the importance of clearly articulating the rationale for each change independently — both the introduction of a hybrid structure and any adjustment to quantum — to ensure that shareholders and proxy advisers can assess the appropriateness of each element.

2. There Will Be a Step Change in Quantum

Only a third of FTSE 350 companies adopted a new Policy in 2025, resulting in little impact on median incentive opportunities across the market. Therefore, if you just look at the quartiles across the entire FTSE 350, it looks like quantum has remained relatively stable. However, when isolating the companies that adopted a new Policy, the median LTIP increase across the FTSE 100 and FTSE 250 were 150% and 100% of salary respectively.

As we expect approximately 50% of FTSE 350 companies will put forward a new Policy this year, we anticipate significant increases in market data. These uplifts are likely to be material and, in many cases, represent a step change from previous Policy limits.

3. Some Companies Will Get It Wrong

As Boards become increasingly focused on doing what is right for the business, we have seen them to take a more aggressive approach to remuneration. This trend has become evident over the past year, with a rise in Policy votes below 80% and an increase in proposals for bespoke incentive structures. We expect this will continue in 2026.

Recently, a number of listed companies have chosen to withdraw or amend shareholder resolutions in response to investor opposition, reflecting the continued influence of shareholder feedback in public markets. In contrast, those companies with support from major and/or anchor shareholders have proceeded with their proposals, despite opposition from institutional investors and proxy advisory firms.

We expect more boards to continue pushing initiatives they believe are in the best interests of the company, even in the face of mixed or negative shareholder sentiment. In contrast, in response to evolving investor expectations, some companies will move quickly to follow emerging trends without fully considering how proposed changes align with their underlying strategy. When this occurs, decisions are more likely to miss the mark with investors, increasing the risk of declining shareholder support and, in some cases, failed Policy votes. This reinforces the importance of a considered, strategy-led approach to remuneration design, rather than reactive adoption of market trends.

4. Non-Executive Director Fees Will See a Significant Increase

Recent IA guidance has highlighted the need for companies to regularly review Non-Executive Director (NED) fees to ensure they appropriately reflect the complexity, responsibility and time commitment of the role. This is particularly relevant as the demands on NEDs continue to increase, with greater regulatory scrutiny, heightened stakeholder expectations, and more complex operating environments.

Despite this guidance, NED remuneration has not increased materially in recent years, in part due to continued sensitivity around pay levels amid the cost-of-living crisis. As a result, the gap between NED fees paid in the UK versus those available internationally has continued to widen, increasing the risk that companies may struggle to attract and retain experienced NEDs, particularly when competing with international markets where NED remuneration is more competitive.

We believe many companies could justify meaningful increases in NED fees, potentially in the range of c.150% to 200% over time. In addition, companies should review the structure of NED remuneration. In the US, almost all companies deliver a portion of fees in shares, compared to less than 10% of companies in the UK. Consistent with recent IA and FRC guidance, providing a greater proportion of fees in shares, purchased at market value, would strengthen alignment with shareholders and bring UK practice closer to international norms.

5. Greater Focus on Pay-for-Performance Alignment

Another key theme that has emerged is an increase in incentive outcomes versus historic norms. This pattern has persisted since the pandemic, when increased uncertainty likely led to more achievable targets being set. Current outcomes are significantly above the historical averages typically seen for annual bonuses (60%–70%) and LTIP (40%–60%).

In the FTSE 100, the median annual bonus reached 79% of the maximum, and LTIP outturns were at 75% of the maximum, both exceeding prior year levels. The FTSE 250 also reported strong vesting, with a 70% median annual bonus outturn and the LTIP vesting at 59% at median. These figures represent notably high outturns, particularly in the FTSE 100.

As companies continue to increase the quantum of incentives in the coming years, Farient anticipates that shareholders and proxy advisory firms will increasingly scrutinise pay for performance, the stretch of incentive targets, and the target-setting process. With increased scrutiny on target setting, Remuneration Committees will face growing pressure to ensure incentive plans are both competitive and defensible.

Conclusion

This year’s developments and expectations for the upcoming year, show that both the environment and advisors must adapt to the changing market. Ensuring remuneration decisions are aligned to the long-term strategy of the company is vital to support the company in achieving its long-term strategic objectives and to receiving the necessary support from shareholders.

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Farient’s approach is strategy led. We consider what works best for each company by carefully considering its strategy, challenges, and future ambitions. This allows us to provide a fresh perspective, informed first and foremost by the commercial requirements. If you would like to discuss these predictions or your specific situation, please contact Stephen Cahill (stephen.cahill@farient.com), David Cohen (david.cohen@farient.com), or Alex Styles-Morris (alex.styles-morris@farient.com)