The revised principles of remuneration are the latest update to ABI guidance that has evolved over thirty years. They address investors’ renewed concerns over executive pay.

Here, ABI members believe that non-executive directors have a key role to play in determining the appropriate remuneration and shareholders should be actively involved without micromanaging companies.

Key principles of the guidance say that company boards should support appropriate rewards for exceptional performance, strongly resist any payment for failure and not engage in crude benchmarking when seeking to justify increases.

Boards should also understand that excessive or undeserved remuneration undermines the efficient operation of the company, adversely affects its reputation and is not aligned with shareholder interests.

“Effective boardrooms should be the powerhouse of the UK economy. The board effectiveness report and long standing remuneration guidelines represent UK best practice. They aim to ensure that remuneration is linked to performance and shareholders’ interests are protected. We continue to favour evolution, building on what we have learnt from recent years to make sure companies act in shareholder’s interests and deliver long-term economic growth that will benefit society as a whole,” said Otto Thoresen, Director General of the ABI.

Commenting on the ABI's report on board effectiveness, Sean O'Hare, partner in PwC's HR and remuneration practice, said it is positive that the ABI recognises that to improve boardroom composition and performance, it is often below board level where change is really needed.

“Firms have to nurture and retain talent up through the ranks, defining skills needed at board level and mapping these against potential candidates. However, difficult economic conditions are likely to put pressure on the diversity, development, and training programmes that are essential to making this happen," he said.

Eversheds’ Mark Spinner welcomed the recommendations on board diversity and in particular the ABI’s call for more female representation.

“There is a growing body of evidence that suggests that adherence to good corporate governance leads to improved performance. Having a balanced board in terms of diversity—including gender diversity—and skill sets allows businesses to minimise ‘Groupthink’ and ensure that there is true independence of thought, which is the mainstay of effective board performance and governance,” he said.

But more work needs to be done to ensure more female participation, he added.

“Although there has been a significant improvement in the number of women appointed to FTSE boards since the publication of the Davies Report in February this year, and in fact more female board appointments have been made in the last 6 months than the whole of the previous 12 months, there is still some way to go before Boardroom Britain can say that it has achieved the inspirational target of 25% female representation by 2015, which was set out for FTSE 100 companies by Lord Davies,” he added.

PwC’s Mr O'Hare also welcomed the ABI’s remuneration principles, which he said were less prescriptive than previous incarnations. “This is good news–indeed the report states it is not the role of shareholders to micro manage companies, a point that is often lost in discussions around executive pay.”

"The revised guidelines also have a much stronger endorsement of discretion, whereby remuneration committees have some room to adjust pay schemes to ensure they reflect corporate performance, albeit within pre-agreed guidelines. This makes particular sense given the current economic environment, as in some cases the formulaic outcomes of pay plans may no longer be appropriate. The importance of clawback is also emphasised, so the ABI should be reassured by a recent PwC survey of major organisations that showed that a third were planning to introduce clawback in 2012,” he added.

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