The coronavirus pandemic has had an unprecedented impact on the world's economy and presented challenges for many businesses. For many senior employees and executives, pay has been scrutinised in light of the issues many companies are being faced with, such as redundancies, lay-offs and furloughed staff relying on government funding.
The need to socially distance, as well as the various other lockdown measures that have been implemented across the UK, has meant that firms are having to consider cost-cutting measures to protect their businesses and financial health. So, what are the considerations for executives during this time, particularly when the focus is so significant on the disparity between their pay and minimising the impact of COVID-19 on the business overall?
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Pay cuts for executives
Various businesses have been using pay cuts for their CEOs and other senior executives, particularly companies such as airlines and other travel companies, as well as industries including hospitality and manufacturing.
These pay cuts have been full or partial depending on the severity of the impact of COVID-19 on the business. CEO cuts have generally been between a third and a fifth. With the pandemic continuing and no definitive end in sight, these cuts are likely to become more widespread and are something that senior executives might need to expect in the coming months.
However, there are legal and commercial implications concerning cutting senior executives pay and employers must ensure they consider these if they are going to do this. Consent will be necessary via consultation with the senior executives about the proposals.
Can senior executives be forced to take a pay cut?
A senior executive cannot be contractually made to accept a pay cut (unless this is actually covered in their contract), however, how they respond could affect their job prospects within the business (as well as the overall likelihood of the business surviving this pandemic).
Ensure you get any changes in writing
Any senior executive facing a pay cut should ensure they are given all the relevant information about the proposals and discuss these with the other affected executives. Any agreement needs to be in writing, setting out a clear time frame and covering what will happen once normality returns.
Bonuses and bonus payment disputes
Companies are being urged to consider their senior executives’ bonuses and whether they should be reduced or cancelled completely during the crisis to take into consideration the issues facing the rest of the workforce and to protect the financial and reputational wellbeing of the business.
Senior executives may have their bonuses affected depending on various issues, including the type of bonus they usually receive:
- Guaranteed bonus - this is a contractual obligation and should not be affected. However, if the business cannot continue financially, then this will not protect this type of bonus. Firms may also ask senior executives to give up these bonuses because of the current situation voluntarily.
- Bonuses linked to certain criteria or targets - these are more likely to be affected since the targets during the current crisis are less likely to have been met.
- Discretionary bonuses - again, these are likely to be affected in the current climate having a negative effect on businesses.
Are senior executives entitled to their bonus?
Bonus payment disputes and complaints from senior executives in the current economic climate are less likely to be regarded sympathetically. Those that feel they have been adversely affected may wish to have this noted in writing with their company to be discussed at a later date when things are more financially stable.
Impact on pay based on commission
Commission arrangements should be carefully documented, detailing how commission is determined and when payment will be made. It will depend on the terms of the contract as to whether commission payments are mandatory or discretionary. Management may be able to alter how commission is set and paid, and whether it can be reduced or forfeited entirely.
Senior executives in this position must ensure they understand the obligations on both sides as set out by the contract and also that they ask for clarification as to whether the terms need to be adapted due to the current pandemic affecting the business.
Furlough
In an attempt to help businesses survive and retain their employees during the coronavirus pandemic, the government introduced the Coronavirus Job Retention Scheme. This scheme assists businesses and safeguards workers from being made redundant when they cannot work due to the current situation.
What does the Coronavirus Job Retention Scheme mean?
Currently, the scheme covers 80% of wage costs, up to £2500 per employee per month. The employer decides whether or not to pay the employee the remaining 20%. The last date that an employer could furlough an employee was 10th June 2020, and from 1st July 2020, the flexible furlough scheme will be introduced. This will allow employees to return to work on a part-time basis.
What changes are being made the furlough scheme?
The scheme is due to change over the coming months. These changes will mean that:
- Employers will pay the National Insurance and pension contribution from 1st August 2020.
- From 1st September 2020, the government will only pay 70% of wages and the employer will have to top this up by at least 10%.
- From 1st October 2020, the government will pay 60% and the employer must top this up by at least 20%.
What does this mean for senior executives?
The main issue for senior executives is that the employer is not obliged to top up the government provision to cover their full pay, and this needs to be considered. It is also possible that those employees that are furloughed are more likely to be at risk of redundancy if this becomes necessary.
The scheme is due to close on 31st October 2020. Further information on the furlough scheme can be found here.
The possibility of redundancy
If redundancies are necessary, employers must follow the correct redundancy procedure. They would need to establish that there is a legitimate and clear business requirement for these to occur and show that they have considered other possibilities, such as furloughing staff and reducing senior executive pay or bonuses.
Consideration should also be given to different roles that could be offered within the business. The workforce affected will have to be informed and consulted on the proposal. Special consideration has to be taken into account for individual employees, such as those on maternity leave or approaching retirement, to protect the business from unfair dismissal claims.
Contact our Employment Lawyers in London
The current economic climate is unprecedented and is affecting businesses worldwide. Whether you are a senior employee or executive concerned about your rights at work during this time or an employer requiring advice and support on these issues as a result of COVID-19 you can contact us by completing the online enquiry form or calling {{CONTACT_NUMBER}} today.