Finance leaders are expected to see the economic impact of the coronavirus pandemic reflected in their compensation this year, research and executive recruiters suggest.
In the US, bonuses are projected to decrease for the second year in a row, according to an executive pay survey by Compensation Advisory Partners (CAP). Higher tariffs and trade policy uncertainty slowed growth in sales and operating income, reducing bonuses for CFOs an average 3.2% in 2019. CAP projected the economic uncertainty brought about by the pandemic will lower bonuses again in 2020.
In Australia, many finance leaders expect pay cuts, said David Cawley, a Sydney-based regional director at recruitment agency Hays.
“From the conversations we’re having with employers, it’s clear that many CFOs have taken a base pay cut and will receive zero bonus payout, or at least a substantially lower bonus payout compared to the previous year,” Cawley said.
Finance leaders tend to be understanding, he said. “There’s an appreciation it’s not appropriate to pay large bonuses or profit payouts at this point in time and that organisations need to preserve cash to see them through this pandemic and out the other side.”
Mike Tsesmelis, ACMA, CGMA, Munich-based international sales director at Auto Export Corporation, which imports Dodge and RAM vehicles in Europe, said freezes and reductions in CFO pay and rewards are to be expected when companies are under increased financial pressure.
Businesses and their CFOs need to think strategically about how the tough economic climate is reshaping business operations to identify opportunities and do things differently, Tsesmelis said. “Remote working and four-day workweeks may offer opportunities to freeze or reduce pay without impacting employee engagement.”
Finance leaders need to be proactive in leading pay cut conversations, he suggested. “First of all, be willing to take the risk of just bringing it forwards. Others may be thinking the same or may not have considered it and appreciate the initiative,” he said. “Then, if possible, show how this supports the company’s goals, by avoiding costly rehiring processes, improving employee engagement, and its positive impact on the community.”
Tsesmelis said it may help improve employee engagement if everyone shares in a little pain to potentially avoid up to 20% of staff losing all their income. “The bottom-line savings might be the same, but the impact on the community, productivity, and morale can be very different if well managed,” he said.
Matthew Evans, a Sydney-based principal consultant at recruitment agency Randstad, said companies should distinguish cost of employment from salary, because most executive directors and nonexecutive directors earn the majority of income through shares, divestments, equity, or bonuses.
Improving cash holdings
Evans suggested that businesses ask whether remuneration increases should be delayed and whether incentives should be paused.
“Realistically, if a business is facing staff and salary cuts, executive directors and nonexecutive directors should be looking to cut their salaries as a matter of course and not just as a virtue-signalling action,” he said. “[A cut of] 10 to 25% is generally the case, with suspension of short-term incentives a probable remediation to help cut cash out of the door.”
This helps conserve cash, and, from an enterprise perspective, it keeps employees in the business. Retaining experienced staff has major long-term effects, Evans added. “These include decreasing the costs to upskill, retain, and attract new employees, as well as keeping company intellectual property and external relationships in place. These have a real impact on cash holdings in a regular business period.”
— Luke O’Neill is a freelance writer based in Australia. To comment on this article or to suggest an idea for another article, contact Sabine Vollmer, an FM magazine senior editor, at Sabine.Vollmer@aicpa-cima.com.