How do you set Exec pay when all normal measures are out the window?
As my blog earlier this month highlighted, whilst there are some examples of Senior Executives forgoing significant parts of their packages to demonstrate solidarity with workers who are struggling having been placed on furlough, others have seemingly signalled a contribution towards the cause, with the FT describing them as joining part of the 20% club of bosses reducing their salaries by a fifth.
I also talked about the messages it sends around authenticity and alignment to culture. Investors such as Schroders have written to UK companies setting out what they expect to see in certain key areas, including executive remuneration. Whilst fundamentally they want to see that companies are taking long terms views, they are expecting decisions to be made in the best interests of stakeholders –not just shareholders but particularly their employees, suppliers and customers. Social responsibility and acting the right way is a key focus as ultimately many of the companies who will succeed post crisis will be the ones who were seem to do the right thing.
Tottenham Hotspur (a club I’ve supported all my life – no boos please!) recently performed a u-turn, listening to the criticism that their initial decision to furlough non playing staff whilst still paying the rather hefty wages of the 1st team players was not the right decision. This type of decision making, both responsive, yet thinking for the long term is critical for our Boards and Remco’s right now, and its not easy. But decisions especially those around Executive Pay and how it relates to decisions made impacting the rest of the workforce are coming under increased levels of scrutiny. This is causing Remuneration committees to use more discretion than they would normally use, primarily because the usual formulaic approach to Executive awards eg performance criteria and are effectively worthless. They are having to consider not just abandoning existing schemes, but also thinking about how future plans could work in practice, especially bearing in mind falls in share value and plummeting markets likely to trigger a recession in the short term could create windfall gains in the longer term. Likewise using ESG metrics as part of a balanced scorecard could unwittingly generate a bonus bonanza as we all stay at home and use less energy.
The role of the Remco has historically been to ensure that good governance prevails when it comes to Executive pay in particular, but more recently with the introduction of the UK governance code and examples set by the Waites Principles, this remit has widened to ensure that there is some level of accountability for ensuring that pay across the organisation not only encourages the right behaviours but that it aligns with broader stakeholder expectations.
With the future of the traditional LTIP in doubt right now, this is a real opportunity for Remco’s to support a resetting of Executive Pay and rebuild trust not just within their organisations but also outside them. As we emerge from this crisis, we will see if sacrificing of an element of a larger package now is truly genuine and whether the Executive Pay packages that emerge fix some of the historical issues we’re used to seeing. No-one is denying that we should reward Executives for their contribution as they steer their businesses through this crisis, but the response needs to be fair, proportionate and in keeping with pay practice for the remainder of their employees.
Have you registered for our webinar yet? This Wednesday at 11.30am, Justine will be in conversation with Valerie Hughes-D'aeth, who led the BBC HR Team as they were navigating the fallout experienced from the initial publication of salaries of the highest earners and the equal pay claims that followed. Register here to ensure you don't miss it!