{"id":22196,"date":"2025-01-20T15:25:23","date_gmt":"2025-01-20T15:25:23","guid":{"rendered":"https:\/\/farient.com\/?p=22196"},"modified":"2025-01-20T18:15:02","modified_gmt":"2025-01-20T18:15:02","slug":"farient-uk-top-five-predictions-2025","status":"publish","type":"post","link":"https:\/\/farient.com\/uk\/2025\/01\/20\/farient-uk-top-five-predictions-2025\/","title":{"rendered":"Farient\u2019s Top Five Predictions for 2025"},"content":{"rendered":"

The executive remuneration landscape in the UK is changing. Over the last 12 months, we have seen greater willingness among companies, shareholders, and proxy advisors to move away from a \u2018one size fits all\u2019 to a more pragmatic, flexible, and tailored approach. Our view is that this is a necessary change to allow UK companies to compete globally for top talent.<\/p>\n

Against this backdrop, the following are Farient’s top five remuneration-related predictions for 2025.<\/p>\n

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Increased focus on commercially led decision-making <\/strong><\/h2>\n

Historically, Remuneration Committees have been heavily influenced by the governance environment when making decisions, resulting in relatively uniform executive pay arrangements across the UK. For example, 75% of companies in the FTSE 350 adopt a deferred annual bonus and a performance-based share plan with a three-year performance period and a two-year holding period.<\/p>\n

Even where alternative structures are used such as restricted share schemes, these have generally followed set parameters and provided limited differentiation across the market.<\/p>\n

As the market moves to a more pragmatic and flexible approach, we predict that Remuneration Committees will increasingly look to more bespoke approaches that effectively address the challenges and circumstances of the company \u2013 with the focus being on what works commercially rather than following the \u2018best practice\u2019 governance-friendly features.<\/p>\n

The key factor in gaining support from shareholders when adopting a more bespoke approach is to ensure the rationale is thoughtful, accurately reflects the strategic challenges of the company, and is well communicated.<\/p>\n

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Hybrid incentive plans<\/strong><\/h2>\n

Hybrid is the future. It is an approach that provides upside potential whilst still having a safety net in challenging environments \u2013 whether that relates to the lows for cyclical companies or to protect all companies in industry specific and\/or wider economic downturns. With this safety net, Performance Share Plans can be genuinely performance based and reward outperformance with no need to consider other aspects like retention.<\/p>\n

Our view is that hybrid plans will become the new gold standard incentive schemes eventually adopted by the majority of the UK market \u2013 as is the case in the US where over two thirds of the S&P 500 currently adopt a hybrid approach for their named executives.<\/p>\n

We predict that hybrid incentive plans will be on the agenda of many Remuneration Committees when undertaking their next Policy review. Given the limited market practice, those companies that adopt hybrid plans will be seen as \u2018innovators\u2019. Inevitably, these will lead to lower votes initially as more conservative shareholders and proxy agencies struggle with this evolution to a new model.<\/p>\n

Given the prevalence of hybrid plans in the US, we expect many early adopters to have significant presence in the US and\/or compete for talent in the US market as this provides a compelling rationale for the change. However, as more companies adopt hybrid plans, we predict that their use will become more widespread across UK-only companies.<\/p>\n

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Shareholders and the governance environment<\/strong><\/h2>\n

While most shareholders are increasingly aware of the need for change regulators and legislators need to adapt also.<\/p>\n

In the UK, there are a series of governance-mandated features (e.g., bonus deferral, two-year post-vesting holding period, post-employment shareholding guidelines) that, when applied together, have been a key contributor to UK pay arrangements being less competitive on the global stage.<\/p>\n

We have already seen some relaxation of these features \u2013 such as companies removing bonus deferral for an executive once the shareholding guidelines have been met \u2013 but our view is that there should be more. This could include:<\/p>\n