The association, which last issued pay guidance in 2007, said boards of insurers should support “appropriate reward” for the performances of executives.
It warned “excessive or undeserved remuneration undermines the efficient operation of the company”.
The guidance comes after business secretary Vince Cable reiterated his pledge at the Liberal Democrat conference to tackle excessive pay cultures.
Bonuses should be held back after “exceptionally negative events” such as market crashes, the ABI said.
Overall pay for board members should be compared to pay at other companies to prevent spiralling remuneration, the association said.
Otto Thoresen, director general of the ABI, said: “Effective boardrooms should be the powerhouse of the UK economy.
“The board effectiveness report and long standing remuneration guidelines aim to ensure 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.”
