More than half of companies (24 out of 45) reporting in the second half of 20201 indicate that boards are following investor guidance and demonstrating restraint when making decisions on executive pay amid COVID-19, according to new analysis from Deloitte.
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The analysis, based on insights from 45 FTSE 350 companies, shows annual bonus pay-outs in these organisations are significantly lower than those seen last year, with a median annual bonus of £0 for chief executives2.
Over 90% of the companies utilising the Government’s Coronavirus Job Retention Scheme, where furlough funds were not re-paid, awarded no bonus. This was also the case amongst companies experiencing significant share price falls, with 80% of companies suffering more than a 20% share price fall paying no bonus.3
While these results reflect the first 45 FTSE 350 companies to have reported in the last six months, the majority will be making executive reward decisions in the coming months, ahead of the main 2021 AGM season (March to May).
Stephen Cahill, vice chairman at Deloitte, said: “We are seeing remuneration committees more actively use judgement and discretion to ensure that executive pay reflects the wider employee and shareholder experience. In the 2008 global financial crisis, executives were seen to be shielded from the downturn. Now, with a growing focus on societal fairness, boards are more aware of the need to show restraint.”
Salary and pension allowances for executive directors have also been subject to reductions in the last year.
Following a significant number of temporary salary cuts for executive directors at the start of the pandemic, nearly 70% of the 45 FTSE 350 companies reporting in recent months announced that they will freeze chief executive salaries in the coming year.
Cuts to executive pension allowances were a key trend in the 2020 AGM season. Around two-thirds of all FTSE 350 companies have committed to align current executive director pension rates with those available to the wider workforce by the end of 2022. This is in line with guidance issued by proxy agencies and investors last year.
Stephen Cahill added: “In recent years we have seen the majority of larger companies fall in line with investor pressure on pensions as well as other regulatory changes, and boards are now rightly focussing their attention on reflecting COVID-19 impact in pay decisions at executive level. Looking ahead, there should be an awareness of the cumulative impact of changes to remuneration packages, and companies need to ensure they can continue to compete for executive talent in a global market.”
Notes to editors
1 Based on analysis of 45 FTSE 350 companies publishing annual reports in respect of financial year ending between April and September 2020 to date i.e. financial year ends reflecting some COVID-19 impact.
2 Typically annual bonuses reflect around one-third of a CEO’s total pay package.
3 Share price movement from January to September 2020 (source: Datastream).
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