New analysis reveals just how significant the role of executive pay has been in the corporate response to the Covid-19 crisis. Analysis by CGLytics, a corporate governance consultancy, shows that a quarter of FTSE 100 companies have now implemented pay cuts for 2020.
The report highlights the pressure companies have been under to focus on the pay of executives before and during the pandemic.
Examples include Rentokil chief executive Andrew Ransom, who cut his own salary by 35% and donated the rest to an employee fund.
Elsewhere, BT’s chief executive Philip Jansen announced he will donate his salary to charity for at least six months, while paying bonuses to the company’s staff. Andy Hornby, CEO of the Restaurant Group, has taken a 40% cut in pay. Executives at retail chain Sports Direct will have their pay cut to £40,000. Michael O’Leary, the chief of Ryanair, has had his pay halved.
The pressure is not only on basic pay. Long-term incentive plans (LTIPs), much criticised in recent times, have also changed. In April Barclays announced that its remuneration committee had decided to delay the first portion of LTIP awards included in a 2017 plan for CEO Jes Staley. They were due to vest in June this year but have been shunted back to March 2021.
Attention on pay has been consistent throughout the crisis. At the beginning of April the Investment Association, a group for UK asset managers, issued its own guidance on pay in an open letter to companies, making it plain that cuts in dividends and change to the pay of employees should be reflected in the remuneration of corporate leaders.
“If a company cancels dividend payments or makes significant changes to their workforce’s pay, IA members support boards and remuneration committees that demonstrate how this should be reflected in their approach to executive pay,” the letter said.
Investment managers too have been vocal. The CGLytics report said: “Investors and investor associations alike have waded in on the issue and have added their voice to the directions issuers and their boards should go during these unprecedented times.”
Both Hermes EOS and Schroders have issued their own guidance to corporates, with executive pay a key factor in how they expect companies to behave.
In his own open letter to companies, Hans-Christoph Hirt, executive director of Hermes EOS, warned that boards should be wary of excessive pay levels.
“Management remuneration should be appropriately aligned with the experience of the wider workforce and society and adjusted taking a company’s circumstances into consideration,” the letter said.
CGLytics added: “Remuneration issues from 2019 are now a heightened issue for investors in 2020. Are remuneration policies clear, without ambiguities? How is reduced commercial activity being reflected in both short-term and long-term performance compensation? Executive pay should continue to be aligned to company performance and investors are keeping a close eye on companies’ remuneration plan performance metrics.”