CEOs taking salary cuts for Covid-19 “shouldn’t be rewarded with actions”

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Companies whose bosses suffered cutbacks during the Covid-19 crisis should be wary of handing them over lucrative shares at the same time, investment advisers warned.

Under pressure from investment firms like Schroders, who demanded that business leaders “share the pain” of the coronavirus, a wave of executives accepted salary cuts, donated charities, or forfeited bonuses .

But some companies, including those receiving state support to pay staff “on leave,” have put in place controversial Long-Term Incentive Plans (LTIPs) that give administrators important responsibilities. actions if they achieve goals.

Insurer Prudential announced on Thursday executive pay cuts “in light of the current situation and the need to maintain executive pay restrictions”.

For CEO Michael Wells, this meant a pay cut of £ 23,000 to £ 1.15 million.

Less than four hours later, in a separate disclosure, the insurer delivered to Wells a LTIP worth £ 878,873 at the current share price.

He will get nothing for three years and will have to meet expandable performance criteria to receive the maximum amount of 83,782 shares.

But the stock could be worth a lot more by the time the program pays off in April 2023, if markets rebound after the Covid-19 pandemic subsides.

Prudential was invited for comments.

ITV directors, including CEO Carolyn McCall, have volunteered to cut their wages by 20% and forgo their 2020 bonuses.

Three days later, ITV announced LTIP and other share premium payments, including some related to 2019, a year for which investors will receive no dividends.

The payments, which come despite the fact that ITV put staff on state leave, would cost McCall alone £ 3.2 million, even at current prices.

A spokesperson noted that ITV “retains discretion to adjust the final results as part of the awards to ensure that they are justified. […] taking into account all relevant factors ”.

Channel 4 has already paid millions of bonuses to bosses and staff while opening talks with the government on the possibility of using a £ 75 million emergency credit facility.

At Reach, owner of the Daily Mirror and Daily Express newspapers, nearly 1,000 employees are on leave, which means they will receive 80% of their salary.

Senior executives, including boss Jim Mullen, will also lose 20% of their salary. On March 30, Mullen received an LTIP of 750,000 shares valued at more than £ 650,000 at present. Like ITV, Reach said he could adjust payments retrospectively if they soared.

G4S granted LTIPs worth £ 9 million this week to 10 executives this week, a month after a similar program in previous years paid shares worth £ 5 million.

The security company also pointed out that it could retrospectively adjust LTIP payments and said administrators do not receive any 2020 bonuses.

Investment institutions that manage money in pension funds will be watching closely to make sure that companies curb any RILT artificially inflated by the recovery in the stock markets.

“In the global context of the business, the experience of the staff, the experience of the shareholders, companies should think about making a move,” said Hans-Christoph Hirt of Federated Hermes, who advises investors holding $ 877 billion. dollars (£ 700 billion) in assets. .

“If there is a relatively rapid recovery, there may be windfall profits that are not really related to the performance of the business but to the fact that there was a crisis and that the government supported the global economy. “

He also warned against the temptation to redesign the LTIP criteria in favor of bosses who might otherwise see their rewards decrease.

“It is essential not to allow readjustment of performance targets at this stage,” he said.

“If you start playing with them and saying things have changed and the targets need to be lowered, the salary will not go down for 2020.”

The Pirc shareholder advisory group would also be happy to see the backs of the LTIPs.

“It happened during the banking crisis,” said Tim Bush, chief executive officer of Pirc. “The drop in stock prices has created volatility that has helped executives meet the higher stock price criteria.

“This crisis has shown that they are not aligned with the interests of shareholders.”

In the midst of a renewed compensation review, the sacrifices of leaders are proving to be varied.

Monzo’s founding boss Tom Blomfield will forgo a year’s salary of £ 1 million, while Sky’s Jeremy Darroch has promised half his salary over £ 1 million in the event of pandemic. BT chief Philip Jansen, who himself had a coronavirus, matched Darroch’s gift.

Bank bosses, accustomed to outrage at corporate greed, have weighed in to varying degrees, under pressure from the Bank of England to exercise restraint.

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