As we all get used to another 3 weeks (at least) of lock-down, we hope all our readers continue to be safe and well.

This week our update focuses on our pulse survey.  We are grateful to all who completed it.  We plan to issue a further survey in due course.

We are conscious a number of firms have undertaken similar surveys so we wanted to focus on areas particularly of interest to remuneration committees.  If the charts which follow do not cover particular questions which you completed and which were of interest, please get in touch with your regular contact at FIT who will be happy to provide a relevant chart without charge.

Our key findings were:

The data for ‘remained the same’ may be pre or post the normal salary review (some responses were unclear), so we did not break the data down but this shows the majority of companies 58% remaining unchanged with an increasing proportion reducing salaries at least for executives.  This proportion has clearly increased over the last 4 weeks and this trend looks set to continue.

Almost half of the remain category indicated that this included a pay freeze which would likely increase to a majority if only those at their normal review date were considered.

This shows only a small number of companies converting salary into shares.

This shows both the levels of salary discount and the levels within an organisation impacted.  The most common level of discount the level is 20-25% (typically initially for 3 months) with the most commonly impacted population being the Board and executive committee.  While unsurprising, it is important to note that there are two reasons for taking salary reductions:

• Affordability – where companies are more likely to extend below these levels
• Leadership – where it focuses on this level (or even just the Board)

Particularly in the second category, there is variance between true waivers (i.e. benefiting the company and shareholders) and payments to charity (possibly through a waiver to secure tax advantages).

This shows the same data, but just for executive directors and executive committee members.

This shows that 29% of companies are considering or have agreed bonus deferrals.  This understates the position as a number of the ‘no deferrals’ had already paid bonuses pre-covid.

This shows that a few companies are increasing the element of deferral into shares.

The responses show that less than 10% of companies are considering adjusting 2020 bonus targets in any way (potentially for below Board participants) and a number have already indicated that no bonus will be payable for 2020. Of those which have not yet set targets, the majority are deferring setting those targets.  The majority of LTIP's are being allowed to vest at the normal time (although a sizeable minority, 25% are deferring).

This shows that LTIP grant levels are not typically being reduced.  This obviously will be case specific to the level of share price fall. But that the majority have specifically noted a discretion to reduce vestings to prevent ‘windfall’ gains.

These show that the majority of companies have not adjusted performance targets before grant have not to reflect covid factors.  This is clearly more likely to be true for the earlier grants over the period and the number changing targets from those originally intended is more likely to increase.

While the majority of companies have not yet considered the issue, of those which have considered whether the current crisis is likely to make a move from traditional LTIP to restricted shares, 78% think it more likely.

These show that the majority of companies are implementing hiring freezes on a broadly company-wide basis.

These show that broadly half of companies have furloughed staff, typically for a significant proportion of the workforce. A small majority of companies are then supplementing the statutory payments.  It should be noted that our questions focus on the UK scheme.

Perhaps more surprisingly:

• Only 25% of companies have an emergency succession plan in place should an executive contract the virus
• Only 12% have provided enhanced insurance provision or other emergency assistance to those in quarantine
• 88% of companies are not enhancing pay for front-line staff (for example many supermarkets are enhancing the hourly rate for store staff by 10-15% for those working and not sick)

If you wish to discuss anything arising from this briefing, please ask your usual contact at FIT or call us on 020 7034 1111 or email us at Info@fit-rem.com.

This paper is intended to be a summary of key issues but is not comprehensive and does not constitute advice. No legal responsibility is accepted as a result of reliance on the contents of this paper.

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