28 April 2020
The International Corporate Governance Network (ICGN), who provide guidance to investor groups on executive pay and governance, have shared their most recent views in light of Covid-19 and beyond.
The open letter (which can be found here) addressed to “corporate leaders” from the ICGN includes the following key points relevant to remuneration for companies:
- Executive remuneration: executive pay should reflect the experience of the whole workforce giving consideration to wider decisions on redundancies, furlough, salaries and bonuses. Management should give priority to preserving the long-term financial health of the company over bonus decisions. Financial sacrifice should be appropriately shared between ordinary staff and senior executive management.
- Annual General Meetings: companies should engage with investors to address any questions as needed, and companies should plan other ways to facilitate these questions given that AGMS are mostly taking place virtually this year.
- Reporting: companies are encouraged to disclose how they are dealing with the pandemic, preferably in the annual report. Companies will need to demonstrate the steps they have taken to achieve resilience.
The letter also covers other governance priorities for companies including:
- Dividends: companies severely affected will need to consider a substantial reduction or complete suspension in dividends. However, if companies can pay dividends without compromising financial stability, they should continue to do so to support the livelihoods of ordinary pensioners and long-term savers.
- Social responsibility: Companies should treat the workforce (employees and contractors) equally to ensure the health and well-being of all staff. Redundancies should be avoided and paid sick leave should be offered.
- Capital raising: the ICGN supports the suggestion that investors should allow share issuers that could be up to 20% dilutive, rather than the current pre-emption 10% limit.
The letter also includes governance considerations for investors - the key point made to investors is to ensure they have regard to the long-term approach. Investors may need to accept short term pain with reductions in dividend payments and investment returns to enable companies to survive this financial crisis. The letter also includes other considerations to investors including climate change, capital allocation and monitoring.
The ICGN is very influential in thought leadership, with many who are influential in corporate governance initiatives involved in the organisation.
Companies need to ensure they are considering the bigger picture across their whole business - not individual decisions in silos. Companies need to ensure that decision making on executive pay is aligned with decision making for the wider workforce. Journalists are very keen to report on mismatches between executive and employee pay decisions and the reputational damage of that could last for a long time.
The letter from the ICGN adds another example of guidance and investor pressure to act responsibly in governance and remuneration decision making at this time and in the coming months and years. Companies will need to be mindful in their decision making, both now and in future remuneration policy setting.
Companies that have received support from government funds are under particular pressure to be seen to be making the “right” decisions. Remuneration has historically been a private matter between a company and its shareholders. We have seen regulation on executive pay in recent years, but with public funds being used to support companies - will pay of employees in private companies become even more of a public concern?
If there is anything you would like to discuss, we are here to help so please do contact us.