In a culture where rising share prices generate high levels of pay, executives tend to gravitate towards the companies most likely to experience sustainable growth. So how can a company that’s going through turbulent times hang on to its high-calibre people and attract new talent? That’s the dilemma facing the company remuneration committees of the many casualties of Covid lockdowns, such as Rolls-Royce (RR.).
In the teeth of the crisis in 2020, both Warren East, Rolls-Royce’s chief executive, and Stephen Daintith, the chief financial officer, accepted temporary salary cuts. For the year as a whole, East ended up receiving less than half the amount that he normally receives. Paradoxically, a drop in pay was his team’s reward for steering the company through what must have been the most torrid year in its history. External events had sunk any chance of achieving their performance objectives, so annual bonuses were zero – and so would be the expected outcomes of all of their outstanding share awards.
There’s a second irony here too. A significant part of the £12.7m that East is reported to have received since taking on his role in mid-2015 has been in shares. He’s expected to build up his shareholding to at least 2.5 times his annual salary so that he personally experiences the gains and pains of investors. He has no choice about this forced investment, and I estimate that share price falls last year lost him £0.8m. Since the take-home pay from the £1.1m he received in 2020 would have been about £0.6m, it’s hard to escape the conclusion that instead of being paid for his intense 2020 workload, he was the one effectively footing the bill for the privilege.