Challenging times for remuneration committees

Covid-19 has had a significant impact on executive remuneration in the private sector, but there are important considerations for the housing sector too.

Interventions are well documented with >20% cuts in basic salaries and removal of 19/20 bonus awards for executives prevalent in listed companies. Many of these were implemented quickly in late March and early April when it became apparent how significant the impact of Covid-19 would be on the economy. And as pressure has increased, more organisations have announced reductions in reward levels for non-executives and executives, in addition to dividends for shareholders.

Scrutiny of remuneration reports from shareholders and other campaign groups will likely intensify over the coming months and years, particularly for companies heavily reliant on Government support during the crisis. This may act as a further catalyst to the longer-term trends in the private sector of increasing transparency and reducing the complexity of executive reward, as well as amending traditional reward structures (including large bonuses and incentive plans). 

While many who have implemented significant reductions in executive reward in the private sector, are fighting for survival; the same is not true in the social housing sector. This doesn’t however ease the complexity of the situation or make decisions to be made by remuneration committees less challenging.

Decisions on non-executive and executive reward often carry difficult moral and ethical judgements. But these will be heightened by the current crisis – particularly for those that have accessed Government support, have made significant cost cutting measures, or had other detrimental impacts on staff or services to customers.

Decisions on executive bonus awards for 2019 / 20 will also be complex. Remuneration committees will need to balance the fact that Covid-19 had a limited impact on the 19/20 financial year, but payments will be made at a time when the negative impact is at a peak, leading to difficult reputational considerations.

At the very least, the annual discussions and decisions on pay awards, market reviews and bonus awards will be much more complex than normal and there isn’t a ‘go-to’ answer on what should be done. The picture will become more complicated the longer this current period goes on. And we may see some similar measures to those implemented in the private sector (in a recent survey we ran, two thirds of respondents commented that they would consider reducing executive remuneration in the future if the situation warranted it).

Key principles to help guide remuneration committees in housing:

The context for every organisation will be unique, but there are some key principles which can be used to help guide remuneration committees and senior HR leaders during these discussions:

  • Focus on the long-term – This period may be here for some time yet, but it will be temporary and a form of business as usual will return. Decisions made now by individual organisations will affect the ability of the sector to be a key driver in the recovery process. The long-term sustainability of any organisation is largely driven by the people employed to lead the organisation. The need to recruit, motivate, reward and retain high calibre individuals will be as critical as ever.
  • Be consistent, transparent and fair – There have been several changes in recent years to promote fairness and transparency across all sectors in relation to reward. Decisions on non-executive and executive reward should be set against the context of decisions that have been made on staff reward.
  • Ensure robust governance – Decisions on reward will be scrutinised now and in the future by a range of stakeholders. It is important that decisions are evidenced and based on full consideration of all factors / information available at that time – including risks, reputational impact, costs etc. prior to being agreed in full. There should be sufficient challenge and discussions should be documented for future reference. Where required also ensure that you seek independent advice and support.
  • Maintain a focus on peers – Being aware of what comparator organisations are doing will be important, both in terms of levels of reward as well as other activities. Continue to review salary and recruitment market data to track changes, but also seek to access additional data on how organisations are changing other areas such as reward structures. 
  • Be flexible – This is a tough period and it is difficult to predict what will happen next. Agility and flexibility will be required in making decisions which are right against the current context. This may include reviewing targets which are not out of date, postponing decisions where more information or time is needed, reviewing the market on a more regular basis than normal or adapting elements of the reward package to attract / retain individuals.
  • Review reward frameworks – Now might also be the time to review existing remuneration strategies and policies to ensure that they fit for the new environment. 

None of these discussions are straightforward, but keeping these principles in mind, will in part help to guide decision making.

Written by Michael Appleby, Markets and Growth Director. For further discussion, feel free to email Michael.appleby@altairltd.co.uk or call on 07545 314 749 or contact Michael on LinkedIn.