Global crisis to increase focus on executive pay

12th November 2020

By Adrian Hitchenor

The global crisis will lead to an increased focus on how executives increase shareholder value, with reward being consistently aligned to performance.

That is one of the key findings of KPMG’s newly published report ‘Directors’ remuneration in FTSE Small Cap companies’ which you can read here.

It found business impact response to COVID-19 has been varied, with many companies adjusting their executive pay downwards, cancelling bonuses/dividends and amending LTIP grants to manage costs. The report says firms now need to turn their attention to planning for the future and longer term remuneration strategy

Executives making tough decisions around salaries, jobs, furlough and the future of their staff has led to increased public scrutiny on executive pay and concern that any reductions in remuneration packages this year are just temporary or superficial gestures, it found.

With wider questions being raised around the ‘fairness’ of pay, KPMG says it expects calls for companies to look more broadly at how all their people are valued and rewarded – both those in the FTSE 350 as well as FTSE Small Cap and AIM listed companies.

The report says: “From an investor perspective, there will be sharp focus on how executives are going to rebuild and then further increase shareholder value. Guidance from institutional investors has been clear that reward must consistently align to performance. The role of the Remuneration Committee Chair, in terms of applying discretionary judgement to outcomes, will become ever more important.

“With…2020 being the year that many companies will be required to renew their remuneration policies, we believe that there is a unique opportunity to look more inwardly at how executive pay has been set and critically analyse if this remains appropriate for the recovery period ahead, in particular as businesses prepare for the next challenge on the horizon in the shape of Brexit.”

Current executive pay levels detailed in the report are based on pre-COVID-19 data published by FTSE Small Cap companies for the 2019 calendar year.

Key findings included:

  • Median basic salary increases continue to be moderate for the majority of Small Cap companies at around 3%.
  • More than 35%   of directors did not receive an annual bonus, with a higher proportion than in previous years receiving less than 50%  of the maximum bonus entitlement.
  • A heavier weighting on fixed pay vs variable pay for Small Cap companies – 54%   fixed and 46%   variable compared to 39%   fixed and 61%   variable for FTSE 350 firms.
  • Performance conditions for annual bonuses continue to focus on the financial, with the EPS and TSR continuing to dominate both annual bonuses and long-term incentives.
  • The prevalence of Performance Share Plans continues to rise, as Stock Option Plans fall further out of favour.

The executive pay breakdown showed basic salary rates for chief executives ranged from £336,000 to £471,000, with total earnings between £498,000 and £1.28m.

For finance directors basic salaries ranged from £216,000 to £323,000 and total earnings were between £301,000 and £757,000. Other executive directors, including operational directors, functional directors and chief operating officers, were paid £185,000 to £296,000 basic and £317,000 to £776,000 in total.

Non-Executive Directors

Fees paid to Non-Executive Directors ranged from £44,000 to £53,000 for NEDs and £126,000 to £196,000 for Chairs.

Diversity

The report also looked at diversity, concluding “there is still significant work to do in this area” for Small Cap companies. Only 2%   of CEOs, 4%  of Finance Directors and other Executive Directors, and 3%   of Board members were female.

Reading the report I was in full agreement about the need for Boards to focus on how executives will add value. A key factor in HW Global’s success is that for us it is not just about filling positions; it’s about increasing shareholder value by introducing individuals who are fit for purpose and culturally aligned.

We particularly enjoy acquiring a thorough understanding of the values and strategic ambitions of the company we are engaged with; this helps us find the perfect fit.

Echoing KPMG’s findings, we always urge clients to carefully consider diversity during an executive search assignment; research shows that firms whose leadership teams best reflect their customer base outperform their competitors on profitability.

In part due to the pandemic, and generally as companies look to be more efficient and lean, there will be more executives looking for fewer available positions and selecting the right individual for a role will be ever important.

Adrian Hitchenor is a Founding Partner at HW Global Talent Partner with a specific focus on CFO, consumer and private equity. Contact him at adrianh@hwglobalpartner.com or on +44 (0) 7711 771 059.

 

Seasoned interims the answer to executive talent gaps in these uncertain times

5th November 2020

By Rachel Frankland 

Uncertainty. You just cannot escape it at the moment. From the US election to Covid-19 to Brexit, we have never experienced such prolonged instability.

Businesses in many – if not most – industry sectors have spent several years now battling to keep up with the frenetic and insatiable drive to new technology.

Digital disruptors have ripped up the rule book and challenged the autonomy of long term industry leaders in every sector from financial services to consumer retail.

Far from stalling the march of digital, the pandemic has created even more demand for online innovation, with lockdowns and related social distancing measures enforcing home working and shopping alike.

But with companies having to slash operating costs – and therefore executive headcount – in response to the unprecedented economic downturn, many are now finding themselves short of expertise in key areas.

The unpredictable economic outlook caused by Covid and – for a number of sectors – Brexit, has left many firms unable to commit to hiring permanent executive leaders in such an extremely challenging climate.

Yet businesses need commercial expertise in vital specialisms such as FP&A, business transformation and digital more than ever, with particular demand for finance roles leading budgeting, reforecasting, working capital and cash flow management.

Interim management can help solve this dilemma for boardrooms.

With so much business restructuring having been conducted this year the candidate market is buzzing, with a broad range of immediately available talent in all of these functional areas.

HW Global is in regular touch with executives – many of whom we have known for several years – in all our key interim markets: financial services; CFO; consumer retail and CPG; and B2B products and services.

The many benefits of interims to companies needing a swift injection of talent, without the long term commitment of a permanent executive hire, also include major savings on remuneration packages with fixed term contracts or agreed day rates, and extensive experience.

We work closely with clients to remotely onboard interim executives, who are well versed in being commissioned by organisations during challenging periods and working flexibly.

Our offices in London, Leeds and Manchester are finding the private equity market in particular is taking advantage of the increased interim talent on offer, alongside the PLCs and other SMEs we serve, as they focus on budgeting and reforecasting for 2021 and beyond.

Please get in touch to discuss the candidate market and how HW Interim can support your short term talent requirements.

Rachel Frankland is a consultant at HW Interim specialising in finance appointments. Contact her at rachelf@hwglobalpartner.com or +44 (0) 113 243 2004 for a confidential discussion.

New Global Corporate R&D VP appointed at Mars Incorporated

19th October 2020

HW Global are very proud to announce that as part of the continued global search partnership, Mars Incorporated has announced the hiring of Dr. Maria Velissariou as the new Global Corporate Research & Development (R&D) Vice President and Chief Science Officer.

Dr. Velissariou joined Mars on September 13 and will lead Mars’ enterprise-wide approach to Quality and Food Safety, Scientific & Regulatory Affairs and deliver Mars’ R&D strategy in partnership with its business segments.

Dr. Velissariou will report into Jean-Christophe Flatin, President of Innovation, Science, Technology & Mars Edge and will partner with the existing Mars Chief Science Officer and Vice President of Corporate R&D, David Crean, as a transition to his retirement in April 2021.

Dr. Velissariou said: “The process was very well managed and despite the COVID-19 challenges the execution was seamless and smooth. HW Global provided timely and well-thought out preparation and coordination, received and provided feedback respectfully and could be relied upon at all times.”

The HW team would like to wish Dr. Velissariou all the very best of luck in her new role, and for a long and rewarding future with Mars.