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Coronavirus - Guidance issued to Remuneration Committees - UK

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The Investment Association (IA) has issued guidance to UK listed companies on how to approach executive pay issues during the COVID-19 pandemic.

The IA published a letter to FTSE 350 chairs on 7 April 2020 setting out the views of its members on certain corporate governance issues during the pandemic. This included a statement that where companies are cancelling dividend payments or making changes to workforce pay, the IA expects that this should also be reflected in their approach to executive pay.

The guidance issued on 27 April 2020 sets out how the IA expects Remuneration Committees to address some of the issues around executive pay they are facing in the current climate. The IA expects that the latest guidance will be updated as the situation develops or other issues arise, and notes that the IA’s Principles of Remuneration continue to provide a useful guide to shareholder expectations and good practice. One of the key messages is that Remuneration Committees must ensure that the executive experience is commensurate with that of shareholders, employees and other stakeholders.

The IA guidance addresses a number of specific topics as set out below.

Adjusting bonus outcomes where dividends have been cancelled or suspended

Where dividends have been cancelled or suspended, Boards and Remuneration Committees should consider how this is reflected in executive pay. This may be through the use of discretion or malus provisions (adjustment of unvested awards) to correspondingly reduce any deferred shares related to the 2019 bonus. Alternatively, shareholders expect this to be “fully reflected” in 2020 bonus outcomes.

Adjustment of performance conditions to take account of COVID-19                          

Remuneration Committees should not adjust performance conditions for annual bonusses or long-term incentive awards to take account of COVID-19.

Where the Remuneration Committee consider that performance of the company and shareholder experience is “not commensurate with the executive remuneration outcomes”, then Remuneration Committees should use their discretion “to ensure a good link between pay and performance”. Discretion should only be used following appropriate shareholder engagement and the reasons for the adjustment must be explained.

Avoiding “windfall gains” being received by executives if 2020 awards have already been made

Where 2020 LTIPs have already been granted by companies with a 31 December year-end, there does not need to be an adjustment to the grant size where the share price fall is solely related to market movements as a result of COVID-19.

However, Remuneration Committees should look at the general market and share price response during the performance period to ensure that windfall gains do not arise when awards vest. Discretion should be exercised to reduce vesting outcomes where windfall gains have been received. Remuneration Committees should set out in their next Remuneration Report the approach they will take and factors they will consider when judging if there has been a windfall gain from the LTIP grant. Awards should be scaled back where there is longer-term individual share price underperformance.

LTIP grants to be made in the coming months

Remuneration Committees should be considering if it is appropriate to make LTIP grants at the present time and whether given the current market environment, it might be more appropriate to postpone these.

Three options are set out in the guidance, depending on the circumstances of the company and the specific impacts on its business:

  • Grant as usual, setting grant size and performance conditions now;
  • Grant at the normal time but delay setting performance conditions until no later than six months following grant when the impact of COVID-19 on the business is clearer; and
  • Delay the grant for up to six months of the normal grant date.

If LTIP grants are delayed, best practice remains a performance period of three years following grant. Where this is not possible, the performance period may be shortened by up to six months. Where the performance period is shortened, grant sizes should be similarly reduced.

Companies seeking capital from shareholders or furloughing employees

If a company has raised additional capital from shareholders or taken advantage of UK Government support measures, such as furloughing employees, then executive pay should reflect this. If employees are asked to take a temporary pay cut, this approach should also be followed by executives.

Should companies change remuneration structures if their remuneration policy is due to be tabled at the 2020 AGM?

Companies do not need to rewrite their remuneration policies where shareholders have already been consulted in advance of the AGM. If companies are seeking to propose variable pay increases, the Remuneration Committee should consider whether such increase is appropriate.

For companies which are yet to consult on a new remuneration policy, where the company is significantly impacted by COVID-19 it may be appropriate to wait until there is further clarity before proposing significant changes to their policies.


Executive pay and reward is clearly a hot topic in the current climate, and listed companies and their advisers will welcome further guidance from the IA on this. The guidance’s makes the point that there is a balancing act for Remuneration Committees between incentivising executive performance at a time where management teams are being asked to demonstrate significant leadership and resilience, whilst ensuring that the experience of executives matches that of shareholders, employee and other stakeholders.

The IA guidance follows similar guidance issued by Federated Hermes and other investors and representative groups.  Voluntary pay cuts have been undertaken by executive directors on the boards of many listed companies in solidarity with furlough and cost-reduction measures which have been undertaken in the wider workforce.

Useful links

Executive Remuneration in UK listed companies

Investment Association Principles of Remuneration – November 2019