Weekly update, 7th May 2020
This week’s update comes to you a day earlier than usual, in preparation for the May Bank Holiday, moved this year to coincide with the 75th anniversary of VE Day.
Whilst many of the planned commemorative events to mark the end of World War Two fighting in Europe have been cancelled, we are being encouraged to reflect in other ways1. The two minutes silence at 11 am will, of course, go ahead as planned. The national toast to the heroes of the war had originally been arranged to take place in pubs across the country. Despite their closure, we can all still raise a glass this Friday. Finally, a nation-wide chorus of Vera Lynn’s We’ll Meet Again is due to follow the broadcast of the Queen’s Speech2. The song has become even more profound of late, taking on new meaning during lockdown. Whilst this is not the way we had envisioned celebrating the heroic efforts of a generation besieged by six years of war, it will still be possible to remember the sacrifices made and consider what we can do to keep the country safe in the face of a very different threat.
Across many countries, the first of May represents Workers’ Day or Labour Day. Consequently, we turned our thoughts to how companies have been looking after their workforce. The government’s job retention scheme has been lauded as a lifeline for businesses and individuals set to suffer during this period of upheaval brought about by the pandemic. Research from think tank, The High Pay Centre indicates that 18% of FTSE 100 firms are using the furlough scheme, 37% of these companies have cut executive pay and 33% are withdrawing or withholding dividend payments.
It is heartening to see that some big businesses are looking to trim pay for those at the top, in order to preserve the long-term future of the company. However, the research also points out that over the past five years, FTSE 100 companies have spent £321 million combined on CEO pay and paid out £26 billion in dividends3. This has led to criticism, with claims that large businesses reducing pay at the top is merely a publicity stunt4.
It is against this background that we await with interest which of these firms continue to rein in the cost of executive pay and which revert to previous levels. In the aftermath of this crisis we will all be braced for difficulties, but as investors, it is important to ensure that workforces are not unduly burdened with that cost. This applies particularly when businesses have received help from the government and those with positions of seniority continue to enjoy high pay. We believe that Covid-19 has brought these issues to the fore and has served as a test of human capital management.
At Holden & Partners, we are aware that the welfare of employees is integral to long-term success. Not only do we operate with that in mind as a business, but we continue to feature the consideration of social issues as an important factor in our fund selection process.
3 http://highpaycentre.org/pubs/high-pay-centre-briefing-corporate-response-to-the-economic-shutdown
4 https://www.bbc.co.uk/news/business-52407914
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