Jean-Pierre Noël, Chartered Companion of the CIPD, executive remuneration specialist, and former Group Reward Director inside three FTSE-50 multinationals, shares his insights on the short-term impact of COVID-19 on executive pay and lessons learned to shape future reward strategy.
Executive remuneration attracts intense scrutiny from numerous stakeholders, including shareholders, investors, advisory bodies, the media, politicians, and executives. Disclosure and other requirements can change fast and the risks, both to reputation and financial, are significant. This makes the role of those who operate in this field, complex, challenging, and high profile.
Short-term impact of COVID-19 on executive pay
Companies have largely sought to ensure the impact on executives reflects the wider employee and shareholder experience. Interventions have included temporary salary cuts and salary freezes for 2021, reduced or cancelled annual bonus, LTIP grant size adjusted to reflect the fall in share price, and decisions delayed given the business uncertainty. These have been shaped by factors such as business performance and needs, extent of Government support, suspension or cancellation of dividends, shareholder and proxy agency views, and Investment Association guidance.
Lessons learned to shape future reward strategy
The pandemic has accentuated issues of fairness and the responsibility of business to broader society. A wider range of stakeholders require consideration (not just shareholders) to ensure sustainable growth. Employee safety and well-being are critical areas of focus, and ESG factors need to be at the heart of decision making.
The 2020 research report on executive pay Jean-Pierre conducted for The Purposeful Company, highlighted two particular challenges, namely setting meaningful and stretch incentive targets in a period of uncertainty, and addressing retention concerns when LTIPs are unlikely to vest. The report includes a section that seeks to identify potential new solutions to these emerging problems, and may be accessed at Reports – The Purposeful Company
The starting point for reimagining the reward strategy must be a clear and robust understanding of the Company’s vision, values, and business strategy post COVID-19. Strategic alignment is critical which includes ensuring the organization capabilities and organization design is aligned with the business needs. Finally, a clear and compelling narrative to show the alignment between the business strategy, people needs, and reward arrangements will help secure buy-in and acceptance from all stakeholders.
Jean-Pierre Noël is presenting the session titled “Reimagining reward strategies in a post pandemic world” at the online CIPD Reward and Benefits Conference 2021 on 12 May 2021. Book your ticket today to hear more from Jean-Pierre Noël.