Investors tell boards to link pay to virus impact

Britain's big investors have told companies to link bosses' pay to the impact on shareholders and employees of the coronavirus crisis.

The Investment Association has written to FTSE 350 chairmen setting out its guidelines for companies and shareholders during the Covid-19 emergency.

The IA, whose 250 members manage £7.7trn of assets, said executive pay should be aligned with the company's performance during the crisis. It said bosses' pay should take account of "the shareholder experience" and not just financial performance.

Many companies are cancelling dividends to conserve cash during the crisis, including the UK's banks under pressure from the Bank of England. Companies are also cutting workers' pay or furloughing employees under a government programme to preserve jobs. Some companies have announced deferred or reduced pay for directors and top managers.

In the letter to chairmen, Andrew Ninian, the IA's stewardship director, said: "If companies are cancelling dividend payments or making changes to their workforce pay, IA members will support boards and remuneration committees that demonstrate how this should be reflected on their approach to executive pay."

The IA said shareholders wanted companies to defer or cut dividends if this was necessary to strengthen finances during uncertain times. It said companies' approach to the dividend should make sure employees and suppliers are paid.

Because dividends are important to pension funds, charities and individual savers, companies should not cut or rebase their dividends unnecessarily, the IA warned.

"Shareholders would expect companies who do decide to suspend to restart the dividend payments as soon as it is prudent to do so," Ninian wrote.

The IA said it supported relaxation of pre-emption rules to give companies more freedom to raise cash urgently from new investors. A fast-track cashbox share issue may be acceptable in exceptional circumstances but companies should not ignore existing shareholders, the IA said.

"Shareholders would expect management to consider their views and not just be led by the views of its advisory banks," Ninian wrote. "Shareholders would also expect companies to offer the placing to existing long-term shareholders, in the first instance."

Shareholders want to let boards and managers concentrate on the most important tasks during the crisis. In return, companies should keep an open dialogue with investors and focus on the long term rather than short-term financial returns, the IA said.

Chris Cummings, the IA's chief executive, said: “The measures announced today will help company boards focus on leading their business through the crisis, looking after their employees, suppliers and customers, in the knowledge that their investors expect them to take a long-term approach to running their business. Investment managers want to see the businesses they invest in do well in the months and years ahead.”