Executive pay levels continue to receive media and public attention year after year. The huge increases in pay seen over the past 30 years have not reflected corresponding improvements in market or economic performance, and have become increasingly hard to justify.
However, comparing and contrasting two economic crisis – the global financial crisis in 2008-2010 and the more recent COVID-19 pandemic and subsequent lockdown – we are able to see a notable change of tack between how Boards responded in terms of executive pay.
With payouts running into several million pounds per year for many CEOs, there is clearly a long way to go before a level of pay is reached that society considers fair. However, the fact that a third of companies reduced pay in the lockdown shows significant shift and an improvement when compared to the GFC. The reasonably widespread response to the lockdown, coupled with the reductions in pension contribution also seen in recent years may not be the end of the journey for investors who wish to see executive incentives structured to drive sustainable long-term value creation. It may, however, be the start of an era where remuneration committees feel more comfortable with reducing salary levels if performance is hit. We may also be seeing the first benefits of the remuneration committee being formally required to account of wider workforce pay and conditions.
Certainly, the role of investors has never been as important in delivering a clear message to Boards on pay as it is today. We will continue to engage companies to ensure pay is fair and appropriate in the circumstances. Whilst the current circumstances are, we hope, time-limited, we can try and use this year and the temporary reductions seen as a catalyst for longer-term change.