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Law360, London (April 28, 2020, 1:43 PM BST) -- The Investment Association has told its members to review the pay packages of top executives, even if they were finalized before the COVID-19 downturn began, as it moves to ensure that bosses do not pocket unearned "windfall gains."
The association, a body representing investment managers, set out guidelines on Monday for shareholders on how to police decisions made by companies about executive pay and bonuses during the economic wreckage of the global coronavirus pandemic.
"During this exceptional period we expect companies to adopt an approach that is appropriate to their business and the specific impacts of COVID-19," Chris Cummings, chief executive of the association, said.
The guidance also suggests that companies which have suspended paying dividends amid the financial stress of the public health crisis should reconsider whether a similar approach should be taken to paying salaries for top executives.
The IA said that shareholders expect companies to "sensitively balance" the expectations of shareholders in financially difficult times with the need to continue to encourage executive performance at a time where managers are being asked to demonstrate "significant leadership and resilience."
Cummings noted that companies should make sure that "executives and the general workforce are treated consistently."
But the body said its members confirmed they do not expect management committees to adjust performance measures to reflect the new circumstances ushered in by COVID-19. Shareholders should push companies to take an approach tailored to the company's individual experience of the crisis.
"The impact of COVID-19 will be different for each and every company," the body said.
Remuneration committees should also make sure they clearly communicate to their shareholders the approach they have chosen to take. The IA said it expects the circumstances of the global pandemic to change, and will update its guidance on executive pay as the situation evolves.
Watchdogs in the U.K. have urged banks and insurers to hold off from paying dividends during the crisis to preserve cash to prop up the battered economy. The country's biggest banks, including HSBC and Barclays, agreed in April to temporarily scrap dividend payments.
British insurers have largely followed suit, with Aviva, Direct Line, specialist insurer Hiscox and RSA Insurance Group shelving plans for payments to shareholders for 2019. But Hastings Group PLC has said it will resist regulatory pressure and will continue to make payments.
The European Central Bank has told lenders in the bloc to freeze dividend payments until at least October.
--Additional reporting by Joanne Faulkner. Editing by Ed Harris.
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