Strengthening remuneration practices through active stewardship

Barney Timson, Assistant Investment Analyst, Castlefield

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

This website should not be taken as financial or investment advice or seen as an endorsement or recommendation of any particular company, investment or individual. While we have sought to ensure information on this site is correct, we do not accept liability for any errors.

Strengthening remuneration practices through active stewardship

Barney Timson, Assistant Investment Analyst, Castlefield

As part of their ongoing stewardship obligations and fiduciary responsibilities, it is important that asset managers actively engage with firms in which they invest. This encourages alignment with best practice standards, particularly on key governance topics such as remuneration. For us, this is a core element of our philosophy and earlier this year, we engaged with two portfolio companies – EKF Diagnostics and Invinity Energy Systems – to discuss their approach to this issue in advance of their respective Annual General Meetings (AGMs).

EKF Diagnostics: Discretionary Bonus Query

EKF Diagnostics is a biotech company specialising in the development and manufacture of diagnostic tools that enable early detection, accurate diagnosis, and monitoring of a variety of illnesses. Ahead of their AGM, we contacted the Senior Independent Director to discuss the topic of remuneration, to help inform our voting decisions.

Our main query surrounded a discretionary bonus payment made during the year under review. We wanted to understand the rationale behind this payment and how this sum was determined, as it had not been subject to performance conditions—a key element of best practice to ensure management incentives are aligned with long-term company performance. We discussed this with the Senior Independent Director, who helpfully provided further insight into the background and reasoning for the decision.

We also highlighted that in the absence of a separate remuneration report resolution, our Proxy Research advisor, ISS, had recommended voting against the annual report and accounts – typically considered a last-resort action reflecting dissatisfaction. Although we operate our own internal voting policy and are therefore not required to follow the recommendations of our Proxy Research providers, we shared ISS’ concern regarding the lack of transparency and best practice.

Outcome: We took the decision to abstain on the Report and Accounts. We felt that voting against would be excessive, however we equally felt that the rationale for the discretionary payment was not strong enough to support the resolution. Although we may have differing perspectives on this issue, we appreciated the engagement and remain supportive as shareholders. Additionally, we encouraged the Board to table a separate remuneration resolution in the future to prevent similar scenarios from reoccurring – a suggestion that was met with genuine understanding and consideration.

Invinity Energy Systems: Collaborative Remuneration Review

We also engaged with Invinity Energy Systems, a manufacturer of Vanadium flow batteries, on the topic of remuneration. Like many of our engagements, this was initially born out of the need for further information to vote at the AGM.

We highlighted that our Proxy Research advisor had recommended voting against the remuneration report because the executive team had been granted nil-cost share options. Invinity are currently pre-profit, therefore paying out cash bonuses to management as an incentive can often be seen as a less appropriate use of funds. Options are a low-cost and sensible way of aligning management interests with the long-term performance of the company. However, our preference is typically for a wider basket of performance metrics, rather than a single measure.

Our initial meeting with Invinity’s investor relations team was constructive, and the company committed to sharing our feedback with the Board. A short while after our initial conversation, Invinity requested that we meet the CEO so that we could provide an investor’s perspective on their remuneration arrangements. In the meeting, we discussed our expectations regarding what we like to see, alongside a number of best practice examples of remuneration reporting.

Outcome: Our suggestions were well received, and Invinity has since initiated a comprehensive review of how it structures and reports on executive pay. In early 2025, they requested a follow-up meeting to introduce their new Finance Director and continue the dialogue on improving remuneration governance.

These engagements on executive remuneration with portfolio companies demonstrate how constructive dialogue can be a means of driving positive change. Whether through encouraging improved transparency or advocating for alignment with governance best practices, the aim is always to ensure that management teams are incentivised in a manner that supports long-term, sustainable value creation.

From a personal standpoint, I see active stewardship as a vital part of any responsible or ‘thoughtful’ investment approach. Our engagements enable us to hold companies to account while fostering a collaborative environment for continuous improvement and support responsible business practices.

Note: The views expressed on these pages are the opinions of their respective author(s) only and do not necessarily reflect the views and opinions of UKSIF.

This website should not be taken as financial or investment advice or seen as an endorsement or recommendation of any particular company, investment or individual. While we have sought to ensure information on this site is correct, we do not accept liability for any errors.