Coronavirus exec pay cuts ‘superficial or short term’, says CIPD

Just 36 FTSE 100 firms reduced CEO reward packages during the crisis, with experts warning of a continuing ‘disconnect’ between performance and remuneration

No FTSE 100 company making cuts to executive pay during the coronavirus outbreak has also changed its long-term incentive plan, research has found, branding the measures “superficial or short term”.

Out of the top 100 companies listed in the UK, just 36 made cuts to CEO pay in response to the economic downturn caused by Covid-19 and subsequent lockdown, according to the annual high pay report from the CIPD and the High Pay Centre.

Of these firms, the most common action was to cut salary, with 14 reducing CEO salary by 20 per cent. Two companies announced they were deferring their CEO’s salary increase.

However, salaries often only account for a small portion of a top executive’s full remuneration package, the report said.

Just 11 firms reduced their CEO’s short-term incentive plan, while no firms announced a reduction in their chief executives’ long-term incentive plan – which typically accounts for half their total remuneration package.

Peter Cheese, chief executive of the CIPD, said the coronavirus outbreak had not proved an “inflection point” for executive pay. “The bulk of cuts made so far appear to be short term and don’t signify meaningful, long-term change,” he said.

Get more HR and employment law news like this delivered straight to your inbox every day – sign up to People Management’s PM Daily newsletter

“Pay among the FTSE 100 will probably fall next year, but this is more likely to be down to wider economic circumstances rather than a fundamental change in approach to executive pay.”

Largely short-term executive pay cuts followed a year in which the median pay packet for a FTSE 100 CEO for the financial year ending 2019 was worth £3.61m – 119 times greater than the median pay of a full-time worker in the UK (£30,353 a year). Compared to the financial year 2018, executive pay dropped just 0.5 per cent, down from £3.63m.

Six firms paid their CEO more than £10m, and the highest-paid FTSE 100 CEO – Tim Steiner of Ocado – earned £58.73m in 2019, 1,935 times the median pay of a full-time UK worker.

The report stated that performance-related pay continued to be “guaranteed” rather than genuinely based on how well a CEO had performed. It said boards were failing to sufficiently scrutinise the impact of individual CEOs on company performance. 

Among the FTSE 100, 88 paid their CEO an annual bonus in 2019, with the total value of bonus payments reaching  £108.48m. Long-term incentive plans were also paid out at 81 companies, totalling £238.19m. 

The report warned that these huge incentive payments risked giving executives disproportionate credit for company performance, which often depended on a wider range of factors, including economic conditions and the contributions of the wider workforce. “We continue to find a disconnect between the total reward packages of CEOs in the FTSE 100 and their actual contribution to long-term company performance,” said Cheese.

“Too big a share of CEO payments depends on the fluctuating fortunes of the stock market and not enough on whether they are a responsible custodian of the business for all stakeholders, including of course the workers who drive long-term value.”

Cheese added that “ now more than ever” RemCos should be looking at wider workforce issues and organisational cultures to help determine executive pay.  ”Not only would this help incentivise CEOs to improve how their organisation invests and manages its workforce to support long-term performance, but it should make companies fairer and will help rebuild trust in business,” he said.