Executive Briefing – Survey & Weekly Update

This week we launched a quick survey of steps taken in response to the pandemic which can be accessed using the button below.  The survey will be confidential but requires entry of company name to avoid duplication of responses.  NEDs or others representing more than one company should complete separately for each company they represent. We hope to include some commentary on this in next week’s update and many thanks for taking the time to participate.

Firstly this week, a number of institutional investors came out with guidance encouraging pay restraints either through cancellation of bonuses or salary cuts (or both).  Such guidelines typically indicate that they would not expect positive discretion to be applied at the end of 2020.  Some went on to say that they would expect the exercise of negative discretion if business activity has increased due to the coronavirus crisis (presumably aimed at supermarkets and healthcare companies).

Secondly, there was specific guidance within banks and financial services.

The Bank of England (broadly consistently with other European banks) has indicated that banks should preserve capital by not paying dividends or cash bonuses to MRTs (otherwise known as ‘code staff’). It is interesting that the guidance does not prevent payment of equity bonuses or other forms of variable pay and does not require cuts to salaries or other elements of fixed pay as had been speculated by some.

The guidance is rather lacking in clarity but formally only seems to apply to a handful of the largest banks (including Nationwide) – essentially Tier 1 – so does not formally apply to other banks.  That said, it is clearly indicative of the expectations.

Guidance to insurers has been both broader (not restricted to the equivalent of Tier 1) and more general, requiring insurers to be mindful of the impact of bonuses and dividends on solvency surplus capital rather than prescriptive.

It should be noted that this guidance is very much focused on capital preservation rather than other forms of ‘fairness’ and, in the context of cancellation of dividends, institutional shareholders may be critical of payment of bonuses even if satisfied in equity. 

Of more relevance to companies across sectors, Glass Lewis issued global guidance suggesting that it would expect companies which cancel/ defer dividends to show alignment and not be paying bonuses etc. we understand that ISS is working up its own updated guidance.

Such questions will become less prevalent as most December year-end companies have now already paid (or not as the case may be) their 2019 bonuses.  Most companies seem to accept it is premature to discuss revisions to targets for 2020.

Below executive level, some companies appear to be enhancing pay for those in the front line of work in connection with the pandemic.

While still minority practice, the list of companies where executives have taken temporary pay cuts continues to grow. An interesting variant on this is Sky where its CEO has committed to donate 6 months’ worth of salary to charities working on the pandemic. Some recent cases announced since those included in last week’s briefing are:

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.

This email is confidential. If you are not the intended recipient, please delete the email and do not use it in any way. FIT Remuneration Consultants LLP (FIT) does not accept or assume responsibility for any use of or reliance on this email by anyone, other than the intended addressee to the extent agreed in the relevant contract for the matter to which this email relates (if any). Consistent with data protection regulations, if you would like to review our records relating to your contact details or to request their removal from our systems, please contact us at info@fit-rem.com. While all reasonable care has been taken to avoid the transmission of viruses, it is the responsibility of the recipient to ensure that the onward transmission, opening or use of this message and any attachments will not adversely affect its systems or data. No responsibility is accepted by FIT in this regard. FIT is a limited liability partnership registered in England under registered number OC364396, with its registered address at 1 Duke Street, London, W1U 3EA.