A quarter of the UK’s biggest firms have cut their CEOs’ salaries in response to the Covid-19 crisis, according to research from the High Pay Centre (ITV.com, 14 April 2020).
In an analysis of statements issued by FTSE 100 companies since the pandemic hit UK shores, the campaign group found that most of the bosses who had taken pay cuts had opted for reductions of 20%: the same proportion that furloughed staff are giving up.
However, one top boss who the High Pay Centre singled out as showing a particularly powerful example is Rentokil chief executive Andy Ransom, who has cut his salary by 35% and donated the rest to a special employee fund. Further coverage of the research has noted that, on the larger end of the SME spectrum, BrewDog leaders James Watt and Martin Dickie have refused wages for the remainder of 2020 to safeguard jobs and the integrity of the business, while COO David McDowall has taken a pay cut of 50% (People Management, 15 April 2020).
Summing up the findings for the FTSE 100, High Pay Centre director Luke Hildyard said: “With the economy facing great uncertainty, and people’s jobs and livelihoods – as well as a considerable amount of public money – now at stake, it’s vital that companies make savings. Very high pay for top earners, who can easily afford a pay cut while still maintaining a lifestyle beyond the wildest dreams of most people, is the obvious place to start.”
He noted: “Our figures show that some companies are taking meaningful action in this respect by cancelling bonuses and incentive plans, or making donations to employee funds or the NHS. Too many, however, are making token gestures, or doing nothing at all.”
Significantly, he added: “As the country faces the long-term implications of this crisis, it is clear that we are going to have to achieve a much fairer balance between those at the top and everybody else in future.”
That’s not the first time this month that such a view has been espoused in the media. In an early-April column (The Guardian, 2 April 2020), finance writer Nils Pratley commended a recent open letter from asset management firm Schroders (Schroders, 2 April 2020) stating that, as the crisis goes on, “Where companies seek additional capital we would expect their boards to suspend dividends and to reconsider management’s remuneration.”
However, Pratley argued, why stop at firms that are raising fresh capital to overcome the crisis? “When normality eventually returns,” he wrote, “the pressure on UK plc to close pay ratios within [its] organisations will be immense. Can the £5 million-a-year chief executive – a common sight among FTSE 100 companies – expect his or her pay package to receive the same unquestioning nod of approval? Our understanding of ‘key workers’ has changed.”
Will firms’ pay-related Covid-19 responses lead to a broader and lasting reassessment of CEO pay?
The Institute of Leadership & Management’s head of research, policy and standards Kate Cooper says: “All sorts of questions are being asked right now about the nature of reward. It is now inescapable that the lowest-paid workers are those with frontline responsibilities – including many NHS staff – and that the services they provide are essential. So it’s only natural for those of us who are involved with the business community to ask more questions about what leaders are rewarding – and why.”
She notes: “The field of public debate has become a kind of sorting process of separating the good companies from the bad – and those labels will translate into the real world as the crisis comes to an end. As businesses rev their engines back up to pre-crisis levels, some employees will return to work reinvigorated in the knowledge that they have been valued and treated fairly. Other staff who were perhaps laid off too soon, treated unfairly or not provided with any messages of value or support will re-enter the workforce, but grudgingly – without the loyal, engaged mindset that will prevail among the first group.”
Cooper points out: “Workers will also have a greater confidence to ask of their leaders, ‘What exactly constitutes an important role in the eyes of this organisation?’ It is clear from anecdotal evidence that, because of the nature of their jobs, many minimum-wage employees have been putting themselves at risk of contracting Covid-19 while generating significant profits for people who are not taking those risks.”
She adds: “The better companies, where senior teams are taking pay cuts and trying to protect the wages of those lower down the organisation, are providing vital benchmarks by which workers can judge what really defines a great employer and a great place to work. And when we, as leaders, get back to dealing with talent shortages – when there is once again competition to recruit people to work for us – those reputations will endure. What a brilliant way to test whether the values that are painted on companies’ walls are the ones that are being lived. Are firms acting with integrity? Are they treating their workforces with respect? Is fairness clearly on the agenda?”
For further thoughts on the themes raised in this blog, check out the Institute’s resources on integrity
See also the Institute’s recent research on organisational values