Bonuses are back and investors in UK companies are ready to fight.
Major shareholders told the Financial Times they expect companies to act with restraint when awarding executives this year, as the cost of living crisis has left many of their employees in a difficult position. .
Amy Wilson, UK head of engagement at Federated Hermès, which manages $624 billion in assets, said: “Compensation is always a sensitive topic, but at a time like this, society at large and employees at companies are feeling the pressure. will receive particular attention,” he said.
“We are looking at how executives have been treated compared to other stakeholders such as employees. [from financial pain] When other stakeholders do not. ”
This year will be particularly problematic for boards. Low-achievable targets set during the pandemic have pushed some bonuses to record levels and many staff are being paid below rising inflation.
“Bonus culture .
But some executives are prepared to argue that they should be careful about cutting too many salaries, given the need to attract and retain the best candidates for top positions. ing.
With some executives being offered higher pay in privately owned companies away from public scrutiny and many with large international companies doing well despite the recession the UK is facing, the Chairman He said compensation should be based on performance rather than politics.
“There are pockets of the market that need to keep wages down, especially if they are artificially inflated by the effects of war, rising interest rates and energy shortages,” said Romi Savova, chief executive and founder of PensionBee. Stated.
However, she added: “We also need to reward and incentivize hard work, so there needs to be a balance and each company ultimately needs to make decisions that reflect the fairness expected by all stakeholders. there is.”
Martin Sorrell, executive chair of advertising startup S4 Capital, said his company’s incentives will be performance-based. “We have ups and downs based on that.”
Sorrell noted that only 5% of S4’s 9,000 staff are in the UK. This means that employee bonuses as a whole are not penalized by the performance of any one country.
He added that salaries would be kept as subdued as possible given the economic slowdown in the UK and elsewhere, but given the large stakes held by senior management, S4 is expected to be part of the IPO. “The strain will be on managers paid in restricted stock, options and cash bonuses.”
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The chairman of another London-listed company, which was looking to recruit a president for its US division, said, “It was impossible to come close to the compensation we needed within the UK’s wage limits. As the largest region, this is a big issue.”
The chairman of another company similarly complained that senior executives were being paid “on par with regional managers in Oklahoma,” even though most of their competitors were in North America.
PwC analysis shows FTSE 100 salaries for the 2022 AGM season have rebounded above pre-pandemic levels across most divisions and are at a five-plus year high overall, with average CEO wages at more than a quarter of a year. A year.
Payouts are boosted by bumper bonuses and are around 85% of maximum payouts, well above the usual pre-corona payout levels of 70-75%.
Caroline Le Meaux, Global Head of ESG Research, Engagement and Voting Rights at Amundi, Europe’s largest asset manager, said: High inflation and a cost of living crisis will make it more difficult to accept very high wages. ”
“The living wage is going to be the most important thing in Britain this season,” she added.
Global wages fell in real terms this year for the first time since comparable records began, the International Labor Organization said this week.
“We want to know what companies are doing to help low-wage workers,” said Tim Goodman, Schroeder’s head of corporate governance, adding that one-time bonuses, financial assistance before payday, supermarkets pointed out initiatives such as distributing food for free. to employees.
PwC predicted that shareholders would scrutinize the 2023 executive pay hike more closely. He said companies should justify “windfall” profits for executives when they experience significant stock price gains that weren’t driven by management actions.
The Investment Association, which represents the fund management industry, has also called for monitoring the compensation of senior executives at FTSE companies.
Investors said executive pay in sectors with a large, low-wage workforce, such as retail and hospitality, and energy are likely to be particularly scrutinized.
BP and Shell posted historic gains as energy prices continued to soar after Russia’s invasion of Ukraine in February. This is as household energy bills skyrocket and pressure mounts on governments to extend windfall taxes on oil and gas companies.
Andy Howard, global head of sustainable investing at Schroders, said: “Upstream energy company executives whose compensation is linked to profits may expect to have a good year.” This is not corporate strategy, but was caused by exogenous events such as the war in Ukraine, and the board must be sensitive to this.”
Even the UK prime minister has been drawn into increasingly politically tense debates.Speaking at the G20 summit in Indonesia, Rishi Sunak said executives “accept wage restraints at a time like this and all We need to make sure we are looking after our employees.”
Sir John Parker, chairman of Laing O’Rourke, said Sunak said, “Given where our economy is positioned, it is right to ask everyone who is privileged to lead to help. Moderation is required.”
