Executive pay: the pressure is on

Executive pay in unprecedented times
Executive pay in unprecedented times

 

There’s always plenty to say about executive pay this time of the year. We’ve had shareholder springs, consumer campaign groups and increased corporate governance. But this year the pressure to ‘do the right thing’ is immense.

As employers struggle to keep businesses afloat, staff are furloughed and the government is stepping in like never before, executive pay is set to become the next battleground.

We’ve already seen outrage as footballers’ wages remain while backroom staff are furloughed, and, tension over bonuses at banks to ensure money is kept in the system to support smaller businesses.

Executive pay is, as we know, complex, with much of the variable elements (bonus and long-term incentives (LTIP)) dependent upon business performance measures. Some measures are absolute, others comparative to peer companies, often with the Remuneration Committee (RemCo) having an element of discretion.

Commentators are going to be looking for any incongruities such as:

  • Large executive bonuses while the wider workforce is furloughed, redundant or business investment is put on hold
  • High dividends paid to shareholders that in turn impact earnings per share and LTIP pay outs
  • Dividends paid while asking for government support. Many executives are required to have a minimum shareholding at all times

Executives should indeed be rewarded for steering their organisations out of a crisis (many are expected to go to the wall) but decision making shouldn’t take place in an environment that is detached from the rest of the organisation.

The UK corporate governance code widened the remit of the RemCo to ensure that executive pay is aligned to that of the workforce and to promote the employee voice.

At this time more than ever the RemCo needs to be listening.

 

At Verditer we make performance and reward more effective. 

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Image courtesy of William Warbey