Pay is a taboo subject and yet is for many of us the key reason for why we work; whether it be to pay mortgages, cover school fees, fund holidays or to enjoy life’s luxuries; most need it.
Some want more than others whilst others use it as a measure for success. However, it relates to you, one thing for sure is that money makes the world go round.
2020 went out with a muted bang and many of us are looking apprehensively to what 2021 will bring. With no clear pathway ahead for many companies, the approach to bonuses this year may be different to others. The need to retain and motivate hard-working employees is crucial but at the same time this needs to be measured with the optics of whether the company has received support from the Government at any point.
Many Executives have had to make crucial decisions last year and have further hard decisions to make over the coming months. Many Boards would like to reward them for the additional stress that they have had to endure but the awarding Executives at this time will require careful consideration, particularly on how this compares to the wider workforce.
We have compiled some key points that @Executives, @HR directors, @Remuneration Committees and @Boards should consider when looking at year end performance:
How to motivate the workforce?
If cash bonuses are out of the question, look at other options such as equity based reward models ( a sense of ownership can increase loyalty and motivate employees to go that extra mile) and benefit changes (such as options to purchase additional holiday during the year).
Executive Salary and bonus
The IA has published guidance on how it expects companies to report and behave this year. They have openly said that Executive salary increases are expected to be in line with the wider workforce. They have also said that companies who have received Governance support or raised additional capital from shareholder should not be paying annual bonuses for they year unless in truly exceptional circumstances – which would require disclosing.
For annual bonuses, where personal objectives have been used, companies should demonstrate how they link to long-term value creation and should not be for day to day activities. Detailed rationale and disclosure of achievements are expected. The weightings, achievement and outcomes of personal and strategic objectives should be disclosed separately.
Consideration for LTIP maturity
It is expected that performance targets for mid-term LTIPs and annual bonuses will not be adjusted to compensate Executives for reduced remuneration outcomes as a result of a COVID-19 downturn. Enhanced disclosures will be expected by companies on any adjustments as well as explanations where Committee discretion has been applied. A dim view will also be taken on mid-term LTIP grants that are cancelled or substituted with other long term incentive grants.
Executive remuneration – maturity
- Performance targets for inflight LTIPs and annual bonuses should not be adjusted to compensate Executives for reduced remuneration outcomes as a result of COVID-19 downturn.
- Enhanced disclosures are expected by companies on any adjustments as well as explanations where Committee discretion has been applied.
- In flight LTIP grants are not expected to be cancelled or replaced with other long term incentive grants.
Executive Remuneration – grant
- Companies are being urged to consider deferring higher portions of annual bonuses into shares.
- ESG performance metrics should be used for variable reward but she should be clearly linked to the implementation of a Company’s long term strategy.