Executive Pay Governance - The LTI Question Every RemCo Should Be Asking

Could changing an LTI performance measure now requires a shareholder vote?

What about:

·         Changing a performance measure weighting

·         Increasing an award limit

·         Introducing a retention award

·         Adjusting targets after a major acquisition?

These are familiar decisions for remuneration committees. 21stCentury discusses South Africa’s new remuneration regime and adds a question: does the decision fall within the approved remuneration policy, or does it materially amend what shareholders approved?

Sections 30A and 30B of the Companies Act, effective from 22 May 2026, bring greater shareholder oversight of remuneration at public and state-owned companies. For long-term incentives, the implications extend across the life of every award.

Section 30A requires shareholder approval of the remuneration policy by ordinary resolution. Once approved, the approval remains effective for three years, but material amendments require shareholder approval before implementation. Section 30B requires an annual remuneration report, also subject to shareholder approval.

For RemCos and the Reward teams supporting them, this raises a practical question: how much flexibility does the approved policy actually allow?

Where does policy end and implementation begin?

Consider a policy allowing performance-share awards of up to 150% of guaranteed pay, measured over three years, with the RemCo setting measures and targets.

Would changing the weighting of a performance measure constitute normal implementation? What about increasing the award limit to 200%, replacing performance shares with restricted shares, or adjusting an existing target following a corporate transaction?

Their treatment depends on the approved policy, governing documents and nature of the change. The distinction between implementation and a material policy amendment needs careful assessment.

There is an accounting dimension too. Changing a measure or target on awards already granted can be a modification under IFRS 2, and any increase in fair value must be recognised as additional expense. Market conditions, such as TSR, and non-market conditions are treated differently, so the same governance decision can carry quite different cost consequences. Finance should be part of the conversation before a change is recommended.

Policy drafting therefore matters. Shareholders need sufficient clarity about what they are approving, while the RemCo needs defined flexibility to manage changing circumstances. Eligibility, award limits, performance requirements and the scope of discretion should be clear enough to guide decisions throughout the policy’s three-year life.

The documents and decisions must align

The remuneration policy, scheme rules, RemCo mandate and individual award letters should tell a consistent story. Together, they should establish what shareholders approved, what the committee may decide and what participants are entitled to receive.

For HR and Reward teams, that means testing award recommendations and proposed changes against the approved policy as well as the scheme rules. Where discretion is exercised, its authority, rationale and effect should be recorded, ideally against the award itself rather than in board minutes and email.

A commercially sensible decision still needs a clear governance basis and an explanation that can withstand scrutiny.

Can you reconstruct the life of every award?

An LTI rarely fits neatly into one reporting year. Grant, performance measurement, vesting and settlement will span several years, with modifications, forfeitures or corporate actions along the way.

Reliable disclosure depends on maintaining that history: the original conditions, subsequent changes, approvals, performance outcomes and eventual settlement.

When records sit across spreadsheets, historic award letters and separate systems, reconstructing the full picture can become difficult. The quality of the remuneration report depends heavily on information captured years before it is written.

This is where LTI design, governance and administration meet, and where the new regime raises the bar on data. A material change to the policy now needs shareholder approval before it is implemented. Securing that approval means explaining what the change does: who it affects, what it costs and how outcomes compare with the current position. The annual remuneration report then requires the total remuneration of each named director and prescribed officer, including the value of share incentives, alongside a pay gap ratio across the workforce.

That depends on accurate, granular award data. Companies need to report by participant, participant group, plan and tranche; show the full history of each award, including the decisions behind any change; and model the effect of a proposed change before the RemCo recommends it. The data also needs to be readily accessible, so the report can be prepared, reviewed and shared without a fresh reconstruction exercise each year.

The same records support ongoing administration, IFRS 2 accounting, participant communication and corporate actions. The new regime simply makes their quality a matter of shareholder approval.

Six questions to ask now

Before the next award cycle or AGM, consider:

• What exactly have shareholders approved in our LTI?
• Which decisions fall within RemCo authority, and which could require shareholder approval?
• Are the policy, scheme rules, RemCo mandate and award documents aligned?
• Is discretion clearly defined, justified and documented?
• Can we reconstruct every outstanding award from grant to settlement?
• Can we model the cost and outcome of a proposed change before it goes to shareholders?

These questions deserve attention before an unexpected event forces a decision. For Reward teams, they also provide a practical framework for reviewing existing arrangements and identifying gaps.

Join 21st Century and ShareForce for our free webinar, where we will explore the implications of sections 30A and 30B for LTI design, governance, administration and disclosure. 21st Century will bring the policy, design and governance perspective, and ShareForce the administration, valuation and reporting perspective.

Webinar registration link: https://events.teams.microsoft.com/event/fb05fca2-79be-4935-90eb-2ac4fc3a03a1@4b2e05b9-a2ff-465e-a272-f08ca2c1ac6a?source=copyLinkLegacyShareEventDialog

The question to bring with you: if shareholders approved our remuneration policy tomorrow, how much freedom would we really have to operate our LTI over the next three years? And if we needed to change it, could our data make the case?