Furlough cash adds to ethical dilemmas around executive pay

By Gavin Hinks

Sign on closed shop

Pay is in the news again. This time boards have been warned that pay should not be excessive, especially if their companies have received pandemic furlough money that has not been paid back. The ethical dimensions of pay in a world of Covid-19 continue to multiply.

This week’s fresh focus on pay takes place in two acts: one from the Investment Association, an organisation for institutional investment managers; and one direct from $3.3trn global investment house Fidelity.

Fidelity’s action took the form of a letter written directly to the boards of FTSE 350 companies. The note is reported to have warned boards that a “restrained approach” should be used for pay arrangement this year, alongside an emphatic warning that investors will vote against pay bonuses at corporates where furlough money has not been repaid.

Elsewhere, investors combined their voices with a warning through the Investment Association, which last week issued a sharp missive not only on pay but also with a warning over the climate crisis and ethnic minority representation on boards, one of many to come in the last few weeks.

The IA warns that investment managers will “continue to shine a spotlight on executive pay”, following a warning that companies should treat their executives “in line with the rest of the workforce”.

The IA’s concern is that remuneration committees might feel the need to boost pay this year to make up for income lost during the pandemic in 2020.

The IA’s note says: “Investors have warned remuneration committees not to compensate executives for reduced pay as a result of the pandemic by adjusting this year’s remuneration, whether through ‘catch up’ awards or disproportionate salary increases.

“Investors also do not generally expect bonuses to be paid if a company has taken government or shareholder support—any company that chooses to do so is expected to provide a clear rationale.”

Pandemic puts pressure on pay

Among observers there is a recognition that executive pay remains a contentious issue, but the pandemic has given it extra bite.

The Institute of Business Ethics’ (IBE) most recent attitudes survey found that pay remains a top three issue among those polled behind corporate tax avoidance in the top spot and environmental responsibility in second. Pay has, however, dropped from second place among public concerns, and is more likely to be a cause of worry for those aged over 55, rather than other age groups.

In January, research from think tank the High Pay Centre revealed that the average FTSE 100 chief executive pay is currently 120 times that of the average worker.

Some, however, note a change under way in some boards. Sandy Pepper, a professor and executive pay expert at the London School of Economics, told Board Agenda in January: “More generally, there is some evidence that companies are taking notice of increasing pressure on executive pay which is being applied by institutional investors like BlackRock and the Norwegian sovereign wealth fund.”

Mark Chambers, associate director for governance with the IBE, says decisions about what to do with furlough money will be “hard” with conditions varying from company to company. It’s worth bearing in mind, he notes, that furlough money was not lent, so there is no obligation to pay it back. However, reputation looms large as a secondary consideration when weighing the issue of repayment. Choosing to retain furlough payments might also present a decision to be covered in section 172 reports.

“Those businesses that can afford to repay furlough payments will need to balance the reputational challenges if they choose not to,” says Chambers.

“Those challenges will increase markedly if the company is able to pay dividends or reward senior executives at anything like pre-Covid levels.”

Companies that choose to repay furlough cash early receive a “reputational boost”, while “those that don’t will need to explain their decision,” he says. “For larger companies choosing not to repay: this is surely the sort of board decision that deserves explanation in their next section 172 report.”

Which raises a tricky issue. Section 172 reports are about corporate consideration for wider society, part of a drive towards a “stakeholder” model of accountability. How will a board justify a decision to hold on to furlough cash paid for by tax payers?

The question is fraught with discomfort and is no doubt being felt in boardrooms up and down the country. Investors have begun to give their views. It’s now up to board members.

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BT chair Jan du Plessis to step down later this year

By News Desk

Close-up of BT logo on its website

BT chair Jan du Plessis has announced he intends to step down later this year. He will stay in place until a successor is appointed.

He joined the BT board as a non-executive director in June 2017 and was appointed as chair in November 2017.

Du Plessis said in a statement: “BT is a fantastic company and it is a huge privilege and responsibility to be its chairman. But after 17 years of demanding roles as chairman of significant FTSE companies, I know the time is now right for me to step down and focus on other interests. Until I hand over to my successor, I remain fully committed to BT and helping Philip [Jansen, CEO] continue to deliver for all our customers, colleagues and shareholders.”

The board will now initiate a process for the appointment of a successor, led by senior independent director Iain Conn.

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FRC: many firms ‘not transparent about their compliance with UK code’

By Gavin Hinks

notebook on boardroom table

Companies appear to be struggling with governance provisions aimed at managing stakeholder engagement and measures to limit the term of board chairs.

The news comes in new guidance from the Financial Reporting Council (FRC), the UK governance watchdog, in which it spells out how to meet the corporate governance code’s principle of “comply or explain”, and calls for more transparency in reporting.

In offering advice on reporting, the FRC shines a spotlight on areas where companies encounter most difficulty. This follows a report last November in which the FRC took a close look at compliance with the UK code.

According to the new document: “One of the most concerning findings from our review was that many companies were not transparent about their compliance with the code.

“Several companies in our sample, including some that claimed full compliance with the code, on further investigation has not acknowledged departure from one or more provisions of the code.”

Stakeholder interests

Some companies fell short of describing how stakeholder interests have been considered or how they engaged with their workforces (they should be using either a director appointed by the workforces, a designated non-executive or a employee advisory panel).

It seems companies can describe what the interests of stakeholders are. “However, they do not describe how these were taken into account in board discussions and decision-making and what was the outcome,” the FRC says.

Further problems arose with reporting the tenure of board chairs. The code says the limit is nine years, but the FRC found unexplained cases of sitting chairs who had served for longer, including one who had occupied the role for 20 years.

“Companies declare compliance with this provision if the chair has been on the board for no more than nine years,” says the FRC.

“We support departures from the code when it is to facilitate effective succession planning or the development of a diverse board, but such cases should still be acknowledged as departure from the code and accompanied by an effective explanation.”

Companies also score poorly on their ability to describe the work of their nominations, audit and remuneration committee, as described in provisions 23, 26 and 41 of the UK code, provision on post-employment shareholdings and measures on executive pensions.

Mixed picture of compliance

Engagement with stakeholders and the workforce over pay is also an issue. The FRC says: “If a company has not engaged with shareholders or the workforce in relation to remuneration, it is not compliant with Provision 40, nor 41.”

November saw the FRC reveal a mixed picture of compliance and accused some companies of treating the code as a “box ticking exercises” producing reporting that is “formulaic”. In one example of poor reporting, the FRC said though many companies state the importance of diversity in the boardroom and in succession plans they “offered little explanation to set out what they are doing to deliver that.”

The FRC’s chief executive, Sir Jon Thompson, said the review highlighted examples of good reporting, but added: “It’s clear that some companies are continuing to take a formulaic approach to corporate governance driven by compliance, rather than focusing on outcomes, supported by high quality and transparent evidence.”

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Kingspan Group announces Éimear Moloney and Paul Murtagh to its Board, respectively as Independent Director and Non-Executive Director

By Debbie Wright

Kingspan Group announces Éimear Moloney and Paul Murtagh to its Board, respectively as Independent Director and Non-Executive Director

By operator Feed Up Talent4Boards – Great Talent builds Great Boards – IRELAND, Kingscourt –  Kingspan Group plc (LON: KGP), the global leader in high-performance insulation and building envelope solutions, today announced the appointments to its Board of Éimear Moloney as an Independent Non-Executive Director and Paul Murtagh as a Non-Executive Director, effective from 30 April 2021. About Éimear Moloney Éimear was … Kingspan Group announces Éimear Moloney and Paul Murtagh to its Board, respectively as Independent Director and Non-Executive Director Kingspan Group announces Éimear Moloney and Paul Murtagh to its Board, respectively as Independent Director and Non-Executive Director From:: Kingspan […]

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Scottish Fire and Rescue Service – Members

By Debbie Wright

Scottish Fire and Rescue Service – Members

Members – Scottish Fire and Rescue Service Reference: 3895 Remuneration: £295 per day Location: Glasgow but also in various other locations throughout Scotland Closing date: 22 March 2021 at midnight Do you have the passion to make a difference for the people of Scotland? Are you a strategic thinker with a real focus on improvement?  Do you have the skills, knowledge and passion to take on one of today’s most important and exciting public service roles? The Scottish Fire and Rescue Service is leading the way in public services by adapting to better meet the needs of its communities. Would […]

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