Executive Pay Reset: What UK CFOs Must Prepare For in 2026

UK CFOs must be ready to defend executive pay structures at this year’s AGMs: FTSE 100 boards are actively stripping ESG metrics out of bonus schemes, and the Investment Association is watching closely.

The Investment Association’s (IA) updated 2026 Principles of Remuneration give companies more flexibility to design pay structures around business strategy — but that flexibility cuts both ways. Investors still expect a robust rationale wherever ESG metrics are reduced or removed, and remuneration committees that cannot articulate one face escalating “against” votes. For CFOs, who typically own the numbers behind incentive design even where the remuneration committee owns the decision, this is now a live AGM-season risk, not a compliance afterthought.

Why Are UK Boards Removing ESG Metrics From Bonus Schemes?

According to Deloitte’s latest FTSE 100 remuneration analysis, 20 companies reduced the weighting on ESG metrics in their incentive schemes this year, and 11 removed at least one ESG metric entirely. The stated reasons vary — simplification, a shift toward metrics more directly tied to shareholder returns, and concern that poorly designed ESG targets were becoming a governance liability in themselves. But investors have not relaxed their expectations in parallel: the IA’s guidance is explicit that where ESG remains material to strategy, it should still flow through into pay.

Executive Action:

• Document the strategic rationale for any ESG metric being reduced or removed before the remuneration report is drafted.
• Cross-check proposed changes against the IA’s 2026 Principles of Remuneration before external disclosure.
• Brief the remuneration committee chair on how peer companies have framed similar changes.

How Much Has Executive Pay Actually Risen?

According to Deloitte, the median actual FTSE 100 CEO pay package rose 18% year-on-year, from £5.01 million in 2024 to £5.89 million in 2025 — a sharper increase than workforce pay growth in the same period. Ten FTSE 100 companies have also made one-off salary adjustments for CEOs or CFOs to reflect market alignment or changed responsibilities. That gap between executive and workforce pay growth is precisely the data point that proxy advisers and institutional investors scrutinise most closely, and CFOs should expect it to surface in shareholder questions regardless of how the ESG metric story is told.

Executive Action:

• Model the CEO/CFO pay-to-median-workforce-pay ratio and be ready to explain any widening gap.
• Prepare a one-page investor briefing that pairs pay outcomes with performance delivered.

What Must the Remuneration Report Now Prove?

Under the UK Corporate Governance Code and the Companies Act 2006 reporting requirements, the remuneration report must clearly link pay outcomes to performance and strategy. Where ESG metrics are dropped, the report needs to show what replaced them and why the substitute is at least as rigorous. Vague language about “simplification” invites exactly the scrutiny it is meant to avoid. CFOs should treat the remuneration narrative with the same evidential discipline applied to financial statements.

Executive Action:

• Require the same level of evidential support for remuneration disclosures as for financial reporting figures.
• Pre-test the remuneration report narrative with the company’s largest institutional shareholders ahead of publication.
• Use INFORMD’s capital approval assessment template to stress-test how pay decisions align with capital allocation priorities.

How Should CFOs Prepare for Proxy Adviser Scrutiny?

Proxy advisers such as ISS and Glass Lewis increasingly flag any material reduction in non-financial metrics as a governance red flag, independent of the underlying rationale. CFOs should assume that any change to ESG weighting will be raised, and prepare a clear, quantified answer rather than a qualitative one. This is especially important where the company operates in a sector where investors have historically pushed hard on climate or workforce metrics.

Executive Action:

• Run a pre-AGM dry run of likely proxy adviser questions on remuneration changes.
• Prepare quantified responses rather than narrative justifications for any metric change.

What Should the Board Approve Before the Remuneration Report Is Published?

The remuneration committee, not the CFO, owns the final pay decision — but the board as a whole should approve the disclosure strategy before it goes external. This is a genuine NED-level governance responsibility: signing off on how the company will defend its pay narrative to shareholders, and ensuring the rationale is consistent with the wider risk appetite and strategy the board has already approved.

Executive Action:

• Present the full remuneration disclosure strategy to the board for approval well before the AGM notice is issued.
• Confirm the remuneration narrative is consistent with previously disclosed strategy and risk appetite statements.

INFORMD provides intelligence briefings, tools and frameworks for senior business leaders across technology, finance, strategy and compliance. Based in Milton Keynes, UK, we help executives stay informed and act with confidence. Explore our full briefing library or access our free assessment tools.

Stay ahead. Subscribe to INFORMD’s weekly executive briefing at informd.co.uk.