The 2020 report by High Pay Centre and the Chartered Institute for Personnel and Development has found that the majority of FTSE 100 companies did not cut executive pay during the COVID-19 pandemic and that where companies did make cuts, they were "superficial or short term".
The report notes that the most common measure taken by 14 companies, has been to cut executive salaries by 20% but notes that salaries typically only make up a small part of a FTSE 100 CEO’s total pay package. Eleven companies cancelled short term incentives for their CEOs and two companies deferred salary increases for their CEOs. However, none of these companies have chosen to reduce or to not award CEOs with long term incentive plan awards which the report notes, typically makes up half of a CEO’s total pay package.
Overall for the financial year ending 2019, the report finds that FTSE 100 CEOs took home a median pay package worth £3.61m, which is 119 times greater than the median earnings of a UK full-time worker (£30,353). This is only a 0.5% decrease when compared with the previous financial year.
The report recommends a number of changes to the remit of remuneration committees and to the pay setting process. The recommendations include:
- replacing the remuneration committee with a people and culture committee or expanding the remuneration committee's remit so that when making decisions on executive pay, the committee must consider organisational culture, diversity, environmental sustainability, investment in skills and wider workforce reward policies;
- linking a greater proportion of CEO pay to non-financial performance measures e.g. measures linked to organisational culture, diversity, skills development and employee wellbeing so that CEOs are actively incentivised to consider the importance of the workforce to long-term performance in their decision making and linking CEO reward packages to more meaningful performance measures, such as how the management of the company's money, people, customers and the environment;
- remuneration committees ensuring that executive benefits are fair when compared to those the rest of the workforce receive, such as health benefits and pension contributions;
- a process for the workforce to formally contribute to the process of setting executive pay to ensure that they have confidence in pay practices and fair distribution of reward and incentivisation; and
- amending the Corporate Governance Code to require public companies to report on ethnicity focusing on senior management teams and their direct reports.
Many of these recommendations echo the recommendations of the FCA letter and companies should take these points into account when looking at executive remuneration over the next financial year.
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