Companies with high levels of female representation on boards were more likely to cut executive pay in response to the economic shock caused by Covid-19, research has found.
Analysis by the High Pay Centre, the Open University, the University of Nottingham and Western University in Canada found that fewer than half of listed organisations cut executive pay amid the economic uncertainty.
Of the 216 listed firms looked at for the Corporate Britain and Covid-19 report, just 104 took at least one measure to reduce executive pay. At the same time, almost a quarter of FTSE 350 companies were taking advantage of the government’s furlough scheme.
Prior to the pandemic, average pay, including bonuses, for a typical FTSE 100 CEO stood at around £4.5 million, nearly 150 times the pay of the median full-time worker in the UK, according to previous High Pay Centre research.
Seventy-eight cut base salaries or cancelled pay rises, while 29 reduced or scrapped bonus payments. Fifty firms cut executives’ salaries by 10-20%, while 11 reduced salaries by more than 50%.
The majority of those that cut executive remuneration packages did so to show solidarity with lower-earning workers, or to control costs.
The researchers looked at statements that were issued to the Regulatory News Service between March and May 2020, when the UK was in lockdown, thousands were on furlough, and the majority of the workforce worked from home. Banks and financial firms were excluded from the analysis because the Bank of England called for reductions in bonus payments for senior staff in light of the pandemic.
Firms with more female directors and higher proportions of share ownership by institutional investors were more likely to cut executive pay. Some firms had a higher level of reduction for certain directors (for example CEOs and chairmen) or reduced compensation of executive directors only.
However, it concludes that as the average base salary for a FTSE 100 CEO stood at £954,000 in 2020 with various bonus payments and share award schemes averaging a value of over £2 million, “a three-month, 10%-20% reduction in base salary does not represent a meaningful reduction in executive pay or saving for the company.”
“It then follows that if greater institutional ownership or female representation on boards delivered only minor reductions in executive pay, other measures – for example greater worker involvement in ownership and strategic decisionmaking – may be necessary to deliver truly responsible businesses fully aligned with the interests of wider society,” the report says.
High Pay Centre director Luke Hildyard said: “If pay cuts are a sign of social awareness/responsibility and more commonplace at firms with more diverse boards, this might incline socially responsible investors to encourage greater diversity.”