The coronavirus pandemic has given a chance for investors to leverage it to put new limits on CEO pay packages and link such payments to a host of social and environmental aims and objectives when companies hold annual general meetings, some being held during the pandemic while others after the passage of the pandemic.
It is expected that AGMs around the world – either in person or through virtual video conferencing, will see one of the dominant issues to be executive compensation, even as the economic impact of the coronavirus is still being assessed by management and shareholders.
Executives’ pay packages were already being linked to new measures even before the coronavirus economic shock. At a time when thousands of people across the world are dying, health systems getting chocked and welting under pressure and millions being sacked or otherwise losing their jobs because of closure of businesses, the issue of CEO pay could become a very sensitive topic for companies as the top bosses are given hundreds of time more pay than the average worker. This also presents a big political and reputational risk for companies.
“There is a massive corporate reckoning coming,” said Todd Sirras, managing director of U.S. consultancy Semler Brossy which advise companies on executive pay. It is expected that company boards would adopt compensation plans for top executives related to new metrics such as worker health or carbon emissions, he said.
AGMs are important for companies because shareholders consent is necessary for fixing compensation, board lineups and other matters
Executive pay has been cut by more than 30 major companies in response to the economic impact of the coronavirus pandemic even before the ABM seasons is to begin. Boeing Co, Qantas Airways and hotel group Marriott International are among those companies that have already cut pays.
This year, non-financial matters could take a back seat because of the economic shock from the coronavirus pandemic especially since many AGMs would be held remotely through video conferencing which may reduce the influence of activist shareholders.
According to leading investor advisory firm Institutional Shareholder Services, an environmental or social metric for the 2018 financial year was included in about 11 per cent of the companies that took part in a study of roughly 4,800 North American and European companies that had some type of pay incentive which was noted on in AGMs in 2019.
The figure could get as high as 25 per cent for the fiscal year of 2019 and could rise more as new targets are added on due to the pandemic by company boards, said Brett Miller, head of data solutions for ISS ESG, the responsible investment arm of ISS.
Miller said that ESG targets, something over which executives have more control, could be embraced by company boards at a time of extreme volatility in markets.
“When management is willing to put their compensation at risk over this, it’s going to be a focus,” he added.
(Adapted from Reuters.com)