Bosses who cut staff pay should expect to tighten belts – investment body

Britain’s top bosses should not expect their pay packages to escape unharmed if they cut staff pay due to the coronavirus crisis, a group representing investors has said.

The Investment Association (IA) said it will support companies to show how any changes to the workforce’s pay or to shareholder dividends should be reflected in executive pay.

“Executive pay should be linked to company performance and take account of the shareholder experience, not just financial performance,” said Andrew Ninian, the IA’s director of stewardship and corporate governance.

In a letter to the chairmen of all FTSE 350 companies, Mr Ninian said that dividends are an important income for many small investors, as well as pension funds and charities.

Though they understand that a businesses approach to dividends should not come at the expense of employees or suppliers, shareholders would be concerned if companies “unnecessarily reduced or rebased” their dividends, Mr Ninian said.

He added: “Shareholders would expect companies who do decide to suspend, to restart the dividend payments as soon as it is prudent to do so.”

The coronavirus crisis has already forced several companies to suspend or cancel shareholder payouts, cut or furlough staff and wages, and slash pay for its their top managers and board members.

On Monday, engine-maker Rolls-Royce scrapped its final dividend and cutting executive pay by 10% this year. Top managers have also deferred their bonuses.

This week it has been joined by Cineworld, GVC and car dealer Inchcape, all of which have decided not to pay out to shareholders.

IA chief executive Chris Cummings said: “Businesses in the UK and around the world are facing unprecedented challenges. The response to the Covid-19 pandemic has caused real strain across the economy and so it is right that investors help steady the ship.”

The IA’s members own a third of the businesses of publicly-listed companies in the UK.

It also said it will back efforts by companies who need more money from their shareholders to help them through the pandemic.