10 June 2020
The International Corporate Governance Network (ICGN) is an investor-led organisation, aiming to promote effective standards of corporate governance and investor stewardship. We previously reported on the ICGN’s open letter to “corporate leaders” here, covering their views on governance priorities.
The ICGN have now published their latest ‘Viewpoint’, focussing on how companies should approach executive pay in light of the Covid-19 pandemic.
In their latest Viewpoint, the ICGN have highlighted the important role of effective remuneration policies and practice, when navigating the challenging global circumstances. Whilst the ICGN intend to publish a more detailed Viewpoint in the future, they have set out three immediate areas of focus for companies:
- Quantum: With vast numbers of people out of work, and entire sectors shut down, companies should expect greater scrutiny of their executive compensation. Companies should pay increased attention to the quantum of executive pay in light of the Covid-19 pandemic, with particular regard to the question of fairness. Those who choose to maintain or increase executive pay, in the present circumstances, could greatly harm their stakeholders’ trust and motivation.
- Structures and metrics: The ICGN have emphasised the important debate surrounding metrics for long-term incentives, in light of the current pandemic. The ICGN acknowledge that it is not easy to set appropriate multiyear targets for long-term plans - for some companies, short-term financial measures may well be obsolete. Companies should, however, consider environmental, social and governance (ESG) metrics, when structuring long-term incentives for their executives. Companies should also be minded to look beyond the current pandemic, when considering relevant ESG factors, with a focus on long term sustainability (and in particular, the climate crisis).
- Employees, stakeholders and sustainable management: Finally, the ICGN have highlighted increased connections between executive pay and the health and safety of employees and other key stakeholders. Companies and their executives should take responsibility for the fair treatment of employees, suppliers and customers. Sustainable management in this difficult period can be enhanced by focussing on long-term measures, strong corporate culture and keeping staff informed.
Whilst not setting out a formal position of the ICGN, these Viewpoints remain a helpful tool for companies to consider when reviewing their approach to executive incentives. The full Viewpoint includes several useful engagement questions, concerning incentive structures in light of the pandemic. It would be sensible for companies to ask themselves these questions, in light of their current approach to executive incentives.
In these challenging times it is often difficult to look too far forwards, however, the ICGN has set a clear focus on long-term measures and enhancing sustainability. There is a clear view that any increase in quantum will face judgment. In the current crisis, excessive awards and inappropriate short term metrics will be subject to increased scrutiny. Companies should also remain mindful of the increased connection between their executive pay and the treatment of their employees and other stakeholders.
The ICGN have set out their intention to publish a more detailed Viewpoint “soon”. We will keep our eyes out for this and will ensure you are kept up to date with any relevant points.
If we can support you in considering any of the points in this alert, or with any of your incentives and remuneration issues during these challenging times, please do contact us.
Carla and Tom