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COVID-19: Exceptional remuneration reductions

26 March 2020

Our recent updates have focused on how companies are handling remuneration decisions in these exceptional times where the coronavirus pandemic is having significant economic consequences for companies. We are collecting information in our Mercer |Kepler database as soon as corporate announcements are made.

In the last week a number of UK companies (note, we have also seen similar changes at US-based companies) have announced specific changes to the 2020 remuneration package for senior executives, and in some cases also non-executive directors, to recognise the wider pressures on pay and employment conditions forced on them by the pandemic. Examples of such changes include:

  1. Temporary reduction in base pay for executives (e.g. Dunelm, First Group, Marriott, McCarthy & Stone, SSP, Wizz Air)

  2. Temporary reduction in non-executive director fees (e.g. Dunelm, McCarthy & Stone)

  3. 2020 bonus scheme cancelled (e.g. Rentokil Initial)

  4. 2020 LTIP grant postponed (e.g. Rentokil Initial)

  5. Reduction in the 2020 LTIP award size to reflect significant share price reductions (e.g. Vesuvius)

  6. No reduction in the 2020 LTIP award size but a commitment that the Remuneration Committee will assess the value at vesting and make reductions if windfall gains have resulted from a bounce back in the share price (e.g. Aggreko, Aviva, Barclays, Rolls Royce)

The handling of pay in these circumstances will clearly be dependent on the specific circumstances for each company. For companies in those sectors which have been particularly hit hard by the pandemic (e.g. travel, hospitality) and where their ability to continue operate is in jeopardy unless they receive assistance from the Government, then making some reduction to the Board remuneration package may be appropriate.

For some companies, logistical challenges in serving public demand and the additional work for all, will inform the exercise of discretion by Remuneration Committees at the end of the year. They will need to take particular note of the employee pay and the treatment of the wider employee population.

The Mercer team continues to monitor these developments and will issue updates on a regular basis. Please do not hesitate to contact us to talk through any concerns about reward in your organisation.

This briefing is for general guidance and does not necessarily cover all areas of the topics included in this briefing. It is not designed to give legal or other professional advice.

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