The Daily Mail ran an excellent story on bankers pay and dividends, see https://www.thisismoney.co.uk/money/markets/article-8177511/Now-bonuses-bankers-told-Industry-fire-pay.html They rang me about it and ShareSoc got a name check – Cliff Weight, director of shareholder organisation Sharesoc, said: ‘The regulator is not being strong enough here. A lot of bonuses are now paid out in shares and the regulator has said nothing about that.’
None of Britain’s major banks has yet confirmed how they will ensure executive pay appropriately reflects the pressures the industry is under. Many other organisations have acted much faster than the banks, who have been quick to cancel their dividends, but less quick to cut their own pay.
Their main cost is payroll and it would be good to know what they are doing to minimise cash flow in that respect. I cannot see many people resigning from their job in the present climate, so the rationale for retain in the three key remuneration goals (retain, motivate and reward) is minimal. Those who are suffering from Covid 19 or the knock on effects of Covid 19, will be less than pleased if bankers continue to get paid at their traditional pay rates.
Leaders (directors and senior executives) should, in my opinion, volunteer to forgo their pay for the duration of this unparalleled crisis. This should apply to all businesses that are significantly affected by Covid 19.
Many jobs are going to disappear. Many companies will go out of business. I think the recovery of the economy will be slow in many sectors. Unemployment will be huge. Government debt will soar. The savings ratio will soar (as people in jobs will stop discretion spending and try and save a little safety net of cash in case of future disasters), although many will be forced to take on debt in order to buy necessities. This will slow the recovery.
Banks have been given (almost) unlimited liquidity by the Bank of England. However some commentators are saying they will still need a bailout if they are to avoid going bust themselves. Banks’ need to avoid bad lending will mean that many of their customers will be forced into administration or large restructuring of debt. This could easily be far worse than 2008, when bankers demanded they keep their big bonuses and get bailed-out. Companies and individuals on the receiving end of the bank’s services will want to see some recognition of how desperate the situation is. Bankers need to set an example. Leaders should forgo their pay, and others should give up part of their salary whilst this crisis continues.
These pay cuts should apply to all businesses severely affected by the Covid crisis, such as pubs, hotels, leisure, airports, airlines, (non-food) retail, etc.
It is not just shareholders who have to suffer. Suppliers, customers, and employees will be losing contracts, jobs and pay. In today’s climate, leaders cannot be seen to be receiving the largesse of egregious executive remuneration. To attempt to do so will lose them the confidence of their stakeholders and that will in the long term be bad for shareholders. Moderation now will be better for all in the long term.
PS if you have reshaped your business in the last two months to do something useful, like build incubators, face masks or Covid-19 antibody tests, etc then focus on the priorities of doing that and sort out pay issues later (and anyway you will probably be too busy to read my blogs).
Cliff Weight, ShareSoc Director
At least Persimmon directors have volunteered to take a cut and forego cash bonuses. Nothing about share awards, but I guess they’re unlikely to vest: https://www.investegate.co.uk/persimmon-plc–psn-/rns/further-update-on-covid-19—board-remuneration/202004021814576563I/
Primark owner Associated British Foods’ chief executive George Weston, finance chief John Bason and Primark’s boss Paul Marchant announced yesterday they will take a 50 per cent pay cut and cancel bonuses for the current financial year.
The company, which has 188 UK stores, is refusing to pay rent to landlords and has wreaked havoc in its supply chain by cancelling all orders, even for those already placed.
Says report in Daily Mail to day https://www.dailymail.co.uk/money/markets/article-8185679/Fashion-bosses-slash-salaries-asking-taxpayer-pay-staff-amidst-devastating-drops-sales.html
I note the comments on the banks in the above article (e.g. “Bankers need to set an example. Leaders should forgo their pay, and others should give up part of their salary”)
There is a letter in today’s Times (Sat 4 April):
“As a Lloyds bank shareholder I am quite tired of the continual bank bashing. The government did not “do us a favour” lending money to the banking system during the financial crisis. It forced Lloyds Bank to borrow and purchase Halifax and Bank of Scotland to avoid a total financial breakdown created in America – a crisis not foreseen by the regulators. The loan was actually paid back with a profit for the government. Now we are expected to act as a welfare society for that portion of the population who have borrowed up to their necks in mortgages, car loans and credit card debit. In my view thrift has been consistently punished”
Sharesoc is “dedicated to the support of individual investors” (from the About page on the website). The above letter would seem to be a personal view from another investor.