FTSE 100 CEO pay drops due to COVID-19

Given the pandemic is not over, it is no surprise that it is still putting pressure on CEO salaries.

A report by consultancy PricewaterhouseCoopers (PwC) found that FTSE 100 CEO pay has fallen by 9% to £2.9 million. Also, nearly 45% faced a salary freeze – this was down from 52% last year.

On top of a reduction in pay, almost one in three CEOs did not receive a bonus; this is double the amount that didn’t get a bonus in 2020.

This reporting comes after the Investment Association (IA) called on companies to be careful with executive pay.

In a letter, the IA wrote: “Investment managers will expect companies to continue to show restraint and restrict executive bonuses where government support has been taken and not paid back during the year under review.

“While the vast majority of companies have been sensitive to the experiences of their stakeholders, including employees and customers, throughout the COVID-19 pandemic when deciding pay and bonuses, investors will be watching to ensure this continues next year, as the country continues to recover from the pandemic.”

However, there are concerns that the continued reduction and stalling in CEO pay may push top-quality talent to look for jobs at privately-owned businesses not beholden to public shareholders or seek to work in the US.

But there is also the need to weigh up that companies are struggling with the ‘Great Resignation’ at the moment; would high CEO pay lead to an even bigger attrition crisis, especially since more junior members of staff have also faced pay freezes or cuts and are struggling to make ends meet?

Linking pay with ESG success

Talking about the findings PwC UK reward and employment leader Phillippa O’Connor said: “We expect to see much of the same restraint and scrutiny where pay outcomes do not appropriately reflect the broader stakeholder experience or environmental, social and governance (ESG) expectations.”

“With more shareholder rebellions being recorded than in previous years, companies would do well to…meet the expectations set and prepare for the new reporting regulations around their net-zero plans.”

The IA also emphasized, particularly in the aftermath of the COP26 conference earlier this month, the importance of companies linking CEO pay and bonuses with ESG success, rather than just financial success.

Director of stewardship and corporate governance Andrew Ninian commented:  “With COP26 focusing minds ever more sharply on climate change, and more and more companies rightly linking executive pay and bonuses to ESG targets, investment managers will be watching closely to ensure these targets are both quantifiable, and linked to the company’s strategy.”

The good news is that companies are already starting to do this.

According to the PwC report, 60% of companies now include ESG measures as part of their executive incentive plans, and almost as many link ESG to executive base pay – this is an increase of 30% on last year.

Could a clear financial focus on ESG also help companies attract new talent in the ‘Great Resignation’? Remember, employees want to work at companies that share their values and do good.