Executivepay during a pandemic. It's a tricky issue, with a lot at stake, not least reputational damage, so how should you handle it? We will offer some suggestions on that shortly but first the reasons why this is in the news again. As you may have seen, in recent weeks a number of retailers, household names, have repaid money to the Treasury in a move which has, largely, attracted positive headlines. Sky News reported, last week that Tesco and Morrisons repaid £859m of business rates relief designed to help retailers during the pandemic. Both companies released statements saying they had weathered the significant financial challenges of COVID-19 very well and, in Morrisons case, were preparing to pay a special dividend to shareholders in January. But, switching sectors, contrast that with the media's coverage of Ryanair back in September which highlighted the company's use of the furlough scheme when a £3.2m pay package for CEO Michael O’Leary was being voted through by shareholders. The FT reported that a third of investors voted against the proposal, but in the end the vote did pass.
The backdrop to this is the new corporate governance regulations mean that for the first time all listed companies in the UK with more than 250 employees must disclose key information about their executive remuneration schemes. This includes the ratio between the Chief Executive’s pay and that of the average employee. The clear message from shareholders is that executives must ‘share the pain’. The message coming from the Investment Association is that Remuneration Committees and management teams need to be even more mindful of the wider employee context through this pandemic. Of course that message is directed at many of our clients and last week we hosted a webinar reviewing 2020 to see what went down well with shareholders in respect of executive remuneration - and what didn't go down so well - and what the focus should be in the year ahead. One of speakers was Lynette Jacobs and I had the chance to catch up with Lynette shortly afterwards. She joined me by video-link from Manchester. I asked her how it had gone:
Lynette Jacobs: "So the, the webinar, thank you, Joe went very well, we had over 100 people listening so clearly executive remuneration and how to reward employees generally is key to many companies' hearts, as it should be. One of the things that we were discussing on the webinar was some guidance that was issued recently as an update by the Investment Association. It was guidance on executive remuneration issued by the Investment Association and one of the points that they made in that, as have many of the other in institutional investor shareholder bodies, is that if companies had the benefit of furlough, or other government loans or indirect government assistance, during the COVID pandemic then it will not be viewed favourably if those companies then pay bonuses to their executive directors that no bonuses should be paid. Some of the questions that came in were asking whether if a company now pays back the cost of furlough, and I heard this morning, I think it was, that Tesco were paying back some of the loans or the furlough that they had received during the period of the pandemic, would it then be appropriate and would the institutional investors have any disagreement with companies then paying bonuses again, and making appropriate executive remuneration payments to their executive directors? The Investment Association have not come out with any comments on that but one would like to think that it would be reasonable that if the reason for saying that bonuses should not be paid to executive directors for the financial year 2020, or 2020/21, is because they have taken the benefit from the government, and because of the idea, the correct and appropriate sentiment, that executive directors should feel the pain, share the pain, along with employees and society in general, that if they are then able now to repay those loans and furlough payments to the government then a reasonable view should be taken of the executive remuneration that is paid and made available to the executive directors."
Joe Glavina: "So given this is such a delicate issue Lynette, I imagine companies would want some reassurance that any decision to make payments to executives would go down well - or, at least, not go down badly. So how do you think companies should handle that?"
Lynette Jacobs: "The answer we gave yesterday is I would recommend that they should speak to their larger shareholders in the company. So for a listed company they'll obviously know who their larger investment institutional shareholders are. Also, perhaps the Investment Association and we'd be very happy to speak to them because we will, you know, be hearing views and we can also reach out to the Investment Association on behalf of companies who have that question. It will be typically listed companies because they're the ones who are more in the public eye and in the public domain and in relation to any payments that they make to the executive directors because quite often there'll be either RNS announcements when they make, for example, a share award to them and/or when they are required to report on the payments that have been made to their executive directors in the remuneration report in their annual report and accounts.”
In case you missed it, last week Lynette talked to HRNews about how companies are using share plans and share awards to incentive and retain staff. You can find that article, and all the others by the share plans team, on the Outlaw website.