April 24, 2020
Companies in nearly all major markets have had to take extraordinary steps to address the COVID-19 crisis. The Association’s Center On Executive Compensation is tracking public announcements of U.S. companies adjusting executive and board compensation in response (see other free trackers here and here).
As governments implement economic aid, restrictions on compensation or payouts have shown little cross-border uniformity. Companies in the UK and other European countries have not faced legislative restrictions on pay as they respond to the public and financial pressures of the crisis. A Financial Times article provides some insight into the steps non-U.S. companies are taking, including:
The FT article also highlights mounting pressure on companies from regulators, politicians, and shareholders. UK financial regulators are calling for banks to reduce bonuses and exercise "extreme moderation on variable remuneration." UK retailers with a March fiscal year end are facing calls to not pay out bonuses tied to the previous year. Additionally, investors have raised concerns that equity and options granted during this crisis will provide executives with a windfall in the future. Rolls-Royce addressed the concern in its annual report, noting that the final payout will include "consideration of any potential windfall gains." Similar windfall concerns are not as common in the U.S. (currently), but there are calls to see companies grant equity stakes to more employees upon returning to work. It is worth noting that several investors (in the UK, the EU, and in the U.S.) have publicly stated that their primary concern is good, stable leadership, not executive pay.
Why this matters: It remains to be seen whether U.S. legislative efforts to restrict executive compensation, equity repurchases, or dividends will also be implemented in other international markets. Further, will the cuts to executive and board pay disclosed by U.S. companies increase the public pressure on non-U.S. companies to take similar steps? Though the COVID-19 crisis is global, the regulatory and political response has largely remained specific to each country. Will the crisis drive various regulatory regimes further apart, or will regulators seek to harmonize regulations where possible? Investors are voicing some concerns, or highlighting changes to corporate governance they would like to see, but by and large appear to be granting boards some time to get a deeper understanding of COVID-19's impact.