Blog Post

Remuneration Committees during Covid-19

  • by Sue Lawrence
  • 17 Apr, 2020

Following on from the article on utilising the expertise around you, this article focuses on the role of the remuneration committee in a Covid-19 world


Crisis management may not specifically be in the terms of reference of most fixed term committees of a board, let alone the remuneration committee. However, given the current times we’re living in, and the significant impact not only on individual companies but the economy as a whole, it would be disappointing if this committee wasn’t actively discussing the topic in rapidly convened virtual meetings.

With large numbers of employees being put on furlough and companies taking funding from the government as a result, there has been even more focus on those companies that pay high salaries and bonuses to their senior executives. The remuneration committee leads and oversees this and, under the FRC Corporate Governance Code (the “Code”) has a responsibility for determining the policy for executive director remuneration’. It should also ‘review workforce remuneration and related policies and the alignment and rewards with culture’.

The Code states that “Remuneration policies and practices should be designed to support strategy and promote long-term sustainable success. Executive remuneration should be aligned to company purpose and values, and be clearly linked to the successful delivery of the company’s long-term strategy.”

It could also be argued that it should be linked to the long term success of the country given the heavy toll on government finances that is currently being seen.

Where companies have a remuneration committee, or have a sub-group of the board reviewing executive remuneration, there is an obligation to recognise the urgency of the situation and identify areas where either temporary or longer term adjustments and contributions can be made.

Public opinion has turned against those high flying individuals taking huge salaries whilst their colleagues are being put on furlough, and key workers continue to function under incredible pressure. Professional footballers, usually the darlings of a football focused public, have seen increased pressure to react, whilst bank CEOs have taken short-term pay and bonus cuts.

Remuneration committees are, presumably, not waiting to be asked to convene an extraordinary committee meeting to discuss what their executive and company should be considering and doing. If they’re not, you have to consider how comfortable it is for them to be sitting on their hands whilst the world is changing. Equally, if they are advising change and being ignored or deferred, there has to be a consideration as to whether the company is paying lip service to a group of expert individuals rather than benefiting from their advice.

Given the seniority and vast experience of the members of remuneration committees, hopefully they’re not waiting to be directed or hiding behind the detail of the terms of reference of their committee. It’s important that there is a clear direction and framework for the work of this group in normal times, but this is anything but normal.

The Chartered Governance Institute model terms of reference for remuneration committees (January 2020) includes the following duties:

Design remuneration policies and practices to support strategy and promote long-term sustainable success, with executive remuneration aligned to company purpose and values, clearly linked to the successful delivery of the company’s long-term strategy, and that enable the use of discretion to override formulaic outcomes and to recover and/or withhold sums or share awards under appropriate specified circumstances.

Now is surely a time to be looking at overriding formulaic outcomes and seeking to recover and/or withhold sums for the benefit of the wider business.

There is also a requirement to be mindful of the views not only of shareholders but also stakeholders. This latter surely includes the wider society. There have been some comments made to justify leaving remuneration untouched. For example, that the continuation of payment supports the economy through tax revenues that are higher than the cost of furloughing colleagues. Surely there should be some pause for thought about how there can be a shared contribution to the situation in some way, even if this is only financial or physical through self exclusion, rather than continuing to protect the riches of the few.  

It could be argued that the remuneration committee largely has a reactive role considering executive remuneration and reviewing workforce remuneration and policies. However, given the members’ presumably have relevant and broad experience in the field of individual motivation and alignment to strategy, this is a forum that should be at the forefront of working with HR experts on finding equitable solutions that are fit for the new world, where proactive organisations are recognizing their wider responsibility outside their own success.

It is becoming evident which companies have recognised their responsibilities and picked up on this new world environment and its drivers. Whether it is the executive themselves, their remuneration committee or external pressure, it’s good to see large organizations starting to address the inequalities in their remuneration, albeit temporarily.

In a post Covid-19 world, it will be interesting to see whether executive remuneration remains more closely aligned to the success of the external economies in which the organisation sits and will continue to be more closely linked to the remuneration of the wider workforce. It will also be interesting to see whether remuneration committees have proved their value during this turbulent time and whether their influence and role will be altered as a result.


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