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In brief

On 27th April 2020, the Investment Association (“IA”) published guidance in relation to shareholder expectations of how the impact of COVID-19 should be reflected in executive remuneration packages. The IA guidance notes that the impact of COVID-19 will be different for each and every company and, at a minimum, shareholders expect Remuneration Committees to take account of their individual circumstances considering, in particular, the impact on their stakeholders. Whilst the IA’s guidance is likely to be updated as the situation evolves, we have summarised the key points below.


  • Should Remuneration Committees adjust bonus outcomes for 2019? Where dividend payments have been suspended or cancelled, Boards and Remuneration Committees should consider how this should be reflected in their approach to executive pay. Some companies will have already decided bonus outcomes and paid out dividends; however, Remuneration Committees should consider using discretion or applying malus to reduce any deferred shares relating to FY2019 bonuses. Alternatively, this should be reflected in FY2020 bonus outcomes.

  • Remuneration Committees are not expected to adjust performance conditions for annual bonuses or in-flight long-term incentive awards to account for the impact of COVID-19. To the extent that the performance of the company and shareholder returns are not commensurate with executive remuneration packages, Remuneration Committees should use their discretion to alter this outcome, engage with shareholders and disclose their reasons for using such discretion.
  • Where companies have already granted 2020 LTIPs, Remuneration Committees should ensure that windfall gains will not be received on vesting. Shareholders will expect Remuneration Committees to use their discretion to reduce vesting outcomes where windfall gains have been received. Remuneration Committees should set out in their next Remuneration Reports the approach that they will take and the factors that they will consider when judging if windfall gains have been received.
  • Where companies will make LTIP grants in the coming months, consideration should be given to the individual circumstances of the company and the impact of COVID-19 on the company when setting grant sizes and performance conditions. Remuneration Committees should consider whether it is appropriate to make LTIP grants at present or whether to postpone the current LTIP grant in light of market conditions.  They should explain their approach to shareholders and commit to using their discretionary powers to ensure that windfall gains are not received. Making awards at maximum opportunity in cases where share prices have fallen substantially is discouraged. Remuneration Committees should also consider if the performance conditions for future LTIP grants are still appropriate in the current market environment. Further guidance has also been provided in relation to grant sizes and performance conditions.
  • Where companies seek additional capital from shareholders or take money from the government (e.g. by furloughing employees), shareholders expect this to be reflected in executives’ remuneration outcomes. Remuneration Committees and management teams should be even more mindful of the wider employee context through this period. Failure to do so may have significant reputational ramifications.
  • Where companies have their three-year Remuneration Policy up for a shareholder vote at the forthcoming AGM, shareholders do not believe that companies should be rewriting their remuneration policies but proposals to increase variable pay should be carefully considered. Where companies are yet to consult on a new Remuneration Policy, it may be more appropriate to wait until there is greater clarity on the future market environment before proposing significant changes to their policies.

For further advice in relation to executive remuneration, please contact a member of your Baker McKenzie Team. To access the IA’s guidance, please click here.


Jeremy Edwards is a partner at Baker & McKenzie´s London office.


Gillian Murdoch is an associate in Baker McKenzie's London office. Gill qualified in the employee benefits team in 2014 after joining the firm as a trainee in 2012. Gill was named as a "Next Generation Lawyer" by Legal 500 in 2017.


Emma Louise Garthwaite is an Associate in Baker McKenzie's London office.