
Daniel Jarman
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The COVID-19 pandemic is resulting in an economic crisis mired in uncertainty. Industry and governments have been forced to react to previously unseen and almost unimaginable threats to the global economy.
After all, how many companies had ‘global pandemic’ listed as a principal risk in 2019? The severe impact of the pandemic on jobs has further heightened investor and public scrutiny of executive pay levels.
We’ve tracked the actions of the UK’s top 350 companies, and analysed how these compare with the reaction to the global financial crisis.
Key takeaway: Boards are more willing to accept that cutting executive pay may sometimes be necessary – something rarely seen as acceptable in the past. We hope this signals a move towards fairer and more performancedriven pay levels.
Risk warnings
The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.
Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.
COVID-19 and the 2008 global financial crisis
In the UK and many other countries, governments have stepped in to pay employees, reducing the short-term need for redundancies. Such job support schemes have been widely embraced by industry and represent an unparalleled intervention by government into the labour market.
Thinking back a decade to May 2010, as the global financial crisis (GFC) continued to bite, we saw the reduction of the UK debt rating and the bailout of Greece. Comparing this crisis with the COVID-19 pandemic, significant similarities and differences exist. One of the starkest similarities is the pain felt through the economy – albeit the shutdown of whole industries this year is unprecedented and has resulted in furloughed staff, pay freezes or reductions, and redundancies, with more on the way.
pay at executive or senior management levels. There were exceptions: Ireland did see significant reductions to executive pay, but in the UK payouts largely remained flat. During the current crisis, we have seen a significant number of companies cut executive and senior management pay levels. Whilst these cuts are of a temporary nature aligning with the rest of the workforce that have been furloughed or let go, the change of approach in comparison to the GFC is notable.

Executive pay under scrutiny
The level of executive pay over the past 30 years has grown exponentially. What has also increased significantly is the focus on executive pay levels in the context of the wider workforce. CEO pay ratios are now widely published (for example in the UK and US) and the level of stakeholder scrutiny of these figures has increased. Negative publicity is not only widely viewed and acted upon by customers, but also employees and others related to the business.
Since the GFC, the role and responsibilities of a remuneration committee in the UK have become deeper. Committees are now required to demonstrate that executive pay outcomes are fair and that they have taken serious account of wider workforce pay and conditions when setting directors’pay. Moreover, society as a whole expects directors to understand the wider workforce and be clear on how pay links to corporate culture.

Management teams are being asked to demonstrate significant leadership and resilience and ensure the executive experience is commensurate with that of shareholders, employees and other stakeholders.
Investment Association, April 2020
The focus on pay, along with other topics such as corporate tax and the treatment of employees during this crisis, will continue through the subsequent economic fallout.
Examples of UK companies that seriously misread the mood music during the pandemic:
- Sports Direct tried to keep stores open as an ‘essential’ service.
- Wetherspoons’ boss Tim Martin had announced that workers would only be paid up until the date pubs were last open and further suggested employees should apply for jobs in food retail.
A company’s social licence to operate is becoming increasingly important.
UK companies respond to the pressure
Following the GFC, shareholders in the UK were given a forwardlooking remuneration policy vote that takes place for each company at least every three years. The first of these votes generally took place in 2014. Given the triennial nature of the policy, 2020 was set to be an important year, with the majority of UK companies needing to renew shareholder approval.
As a result of the pressures on executive pay as the pandemic hit, we witnessed companies deferring any proposed increase to pay for at least a year. A common practice seen was to defer implementation of any pay rises until more certainty returns to the economy. This approach is justified given the potential reputational impact of executive pay increasing whilst employees may be furloughed.
contribution received by senior management, in order to bring them in line with those received by the rest of the workforce.
Important changes we have seen this year:
- A majority of companies reducing pension contributions for new executives formally in the remuneration policy – changes that on the whole were planned well before the pandemic struck
- Many have also implemented actual decreases in pension contributions to serving directors, while a decade ago a cut to an individual director’s pay package was almost unimaginable
This has been a great example of investors and industry bodies all giving a clear message on a topic and companies responding.
Pension contribution, or equivalent, as a proportion of FTSE base salary (%)
Actions
by FTSE-350 companies
FTSE 100 | empty-cel | FTSE 250 |
---|---|---|
38 ……. | companies disclosed some
form of temporary pay reduction | …… 84 |
32 ……. | disclosed salary reductions | ……. 76 |
5 ……. | announced incentive cuts or
incentive deferrals without a corresponding
salary decrease | ……. 8 |
13 ……. | companies announced either incentive
deferrals or reductions for the prior financial
year that were yet to be paid, or bonus
waivers for the current financial yea | ……. 26 |
20% …….. | salary reduction was the most
common response to the crisis | ……. 20% |
The consumer discretionary, financial and
construction sectors saw the majority of
reductions
|
“It was encouraging to see a large number of major banks announcing various actions to reduce executive pay.”
Banks cut pay as dividends take a hit
- The European Central Bank issued guidance for banks not to pay dividends for financial years 2019 and 2020 until at least 1 January 2021.
- The Swiss Financial Market Authority FINMA urged Swissdomiciled companies to drop dividend proposals. These moves were intended to boost banks’ capacity to absorb losses and to support lending.
Selected Banks | Salary, Fees & Pension (top executives and Board directors) | Bonus | Long-term incentive |
---|---|---|---|
UK | |||
HSBC |
| ||
Barclays
|
| Delayed release of part of 2017 long-term incentive plan due to vest in June 2020 | |
Lloyds Banking Group
|
| CEO waived 2019 bonus
| |
Rest of Europe
| |||
Banco Santander
|
| ||
Deutsche Bank
|
| ||
Unicredit
| Top managers waived 2020 bonus pay and donated equivalent to the UniCredit Foundation to support social initiatives | ||
UBS |
|
Final thoughts
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Responsible Investment – a glossary of terms
Its wide-ranging nature means that responsible investment involves a host of associated language and jargon. Here we explain some of the most commonly used terms.
Active ownership
Discharging responsibilities as investors and owners in a company through engagement and voting to influence the management of environmental, social and governance (ESG) issues.
Stewardship
The responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.*
Environmental, Social and Governance (ESG)
A framework that breaks the broad concept of sustainability down into these 3 key issues.
Engagement
Entering dialogue with companies after investment, to support and encourage positive change in the management of key ESG issues.
Sustainable Development Goals (SDGs)
The 17 goals set by the United Nations in 2015 are a global framework for achieving a better and more sustainable future. They address the global challenges we face, including those related to poverty, inequality, climate, environmental degradation, prosperity and peace and justice. The UN is targeting completion of all 17 interconnecting goals by 2030.
* https://www.frc.org.uk/getattachment/5aae591d-d9d3-4cf4-814a-d14e156a1d87/Stewardship Code_Final2.pdf, p. 4. The Investment Association reserves the right to review its alignment with the FRC definition at any time.