The novel coronavirus (COVID-19) has spread rapidly around the globe, creating an unprecedented disruption to the global economy – from which Hong Kong’s economy has not been exempt. In light of the challenging market conditions for the near future, employees and shareholders look to your organisation’s leadership for a path forward.
These headwinds create a difficult dichotomy: Companies may find it challenging to adjust compensation expense to reduced and shifting demand. While some businesses have done well (supermarkets, delivery services and the information technology sector), overall demand has dropped substantially as companies and individual search for cash and liquidity.
Companies face decisions on lay-offs, furloughs and spreading of work through reduced working hours versus finding ways to make compensation costs more flexible, less rigid and more elastic.
There are four principles that can help your organisation in making executive compensation less rigid.
- Continue to observe market conditions
- Be pragmatic and willing to exercise discretion
- Make equitable decisions for all stakeholders
- Support decisions with facts
At the current stage, it’s prudent to delay decision-making initially until the magnitude of the impact of COVID-19 is clearer. That stage appears to be ending. Second, all stakeholders should expect fairness. Boards and executives should move forward and apply reason and practical judgement to any compensation adjustments – whether it be downwards or upwards.
Likewise, employees will expect the same fairness – it would be tone deaf for executives in industries with low demand to see an upwards adjustment while the frontline experiences significant pay cuts across the board. After all, executives are also employees. Finally, tracking and quantifying the impact of this pandemic should justify any decisions made, and help businesses to better forecast future demand.
To get the full details of the four principles, how they connect with the implications to pay actions and incentive pays, and what actions other companies are taking, please visit the Mercer Hong Kong website to download the complete Executive Remuneration Considerations in Response to a Global Pandemic whitepaper.