High Pay Centre Briefing: Corporate Response to the Economic Shutdown
At least 18% of FTSE 100 firms are using the UK Government's furlough scheme. 37% have cut executive pay and 33% are withdrawing or withholding dividend payments
Our new research shows that as of 22 April, at least 18% of FTSE 100 companies and 23% of FTSE 250 companies were intending to take advantage of the UK Government's ‘Coronavirus Job Retention Scheme.'
This means that staff will be placed on furlough with 80% of their wage costs covered with public money.
The High Pay Centre’s research shows that in the past five years these companies have spent a combined £321million on CEO pay, paying out £26 billion in dividends and £42 billion in profits. The Office for Budget Responsibility has estimated £42 billion as the total cost of the job retention scheme.
The scheme is a vital progressive measure to protect jobs and incomes, initiated on the basis of advice from trade unions. While, the rewards lavished on executives and investors in recent years by major companies that now require public funding to sustain them through the shut down raises questions about their resilience and stewardship, it would be senseless to punish their workers for this by denying them access to the furlough support.
However, companies that are effectively subsidised with public money through the scheme will come under additional pressure to act in the public interest in future.
This should mean fairer pay practices, with no executive excess at the top or poverty pay at the bottom, plus responsible business conduct on areas like tax or climate change.
The survey resarch also found that:
- 37% of FTSE 100 companies and have cut executive pay in order to reduce costs during the shutdown.
- However, only 13% have cut the bonuses and long-term incentive payments that comprise the biggest component of executive pay awards.
- 33% have withdrawn or withheld dividend payments.
Cuts to CEO salaries of between a third and a fifth have been the most common measure of pay reduction adopted, though it is not always made clear whether this represents a reduction to the annual salary or on a pro-rata basis for the duration of the lockdown.
Incentive pay is tied to company earnings and shareholder returns. However, the use of additional operational metrics, the possibility of markets rebounding and the fact that performance is often measured relative to rival companies, rather than in absolute terms, means it is not inevitable that pay awards will automatically fall as a result of the crisis without companies taking discretionary action to reduce them.
Assuming a salary of £850k and bonus of £1.4 million (the FTSE 100 medians), a 20% salary cut lasting 3 months would represent a loss to the CEO of £42,500. A 30% cut to annual salary and cancellation of bonus payments would amount to a loss of £1.65m.
Since 1 January 2020 the average FTSE 100 CEO has earned:
Income inequality in the UK
Wealth inequality in the UK
- HPC/CIPD Annual FTSE 100 CEO Pay Review - CEO pay flat in 2019
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- Blog: To ‘build back better’, we must tackle executive pay
New research has revealed how much CEOs earn compared to their colleagues – and the results aren’t pretty.
- Blog: COVID19 and corporate resilience
The pandemic is highlighting the deep flaws in the UK’s corporate governance system. Will this prompt listed companies to rethink their priorities? - A blog by Rachel Kay, a researcher at the High Pay Centre