An increasing number of UK-listed companies are cutting or suspending dividend payments in order to preserve cash and protect their balance sheets in response to the economic impact of coronavirus. The suspension of dividends will be a real worry for income-dependent investors such as pension funds.

Companies that have suspended dividends include Crest Nicholson, Elementis, McCarthy & Stone, Micro Focus, Next, New River, Playtech, PPHE, Portmeirion, RM, Shoezone, SQN Asset Finance, and William Hill. However, some companies, such as Next, have said they may pay an interim dividend later in the year. The companies in question that have already released their AGM notice have withdrawn the resolution to approve the final dividend from the agenda. Quartix Holdings is taking an alternative approach by recommending shareholders vote down the dividend resolution instead of withdrawing the resolution.

On the other hand, easyJet has warned it may struggle to survive without government assistance but has said it is legally obliged to pay its £170m dividend to shareholders as it has already held its AGM. Other companies facing financial hardship are seeking to maintain their dividend such as Carnival, the owner of Princess Cruises, the operator of the Diamond Princess.

Whilst recognising the unique situation companies face, shareholders may also expect boards to reduce executive pay. Excessive executive pay is questionable at the best of times, but particularly so at a time of a global crisis when jobs and cash can be saved. Thinktank High Pay Centre has argued in a recently published paper that government bailouts of large businesses affected by the coronavirus must include social and environmental conditions, including a cap on CEO pay at 10 times the median pay of employees.

Carnival holds its AGM on 6 April and reported a ‘single figure’ of remuneration for CEO Donald Arnold of $8.581m for 2019 and a CEO employee pay ratio of 723:1. Carnival has stated that the ongoing effects of COVID-19 on its operations and global bookings will have a material negative impact on its financial results and liquidity, and given the uncertainty, it is currently unable to provide an earnings forecast. Carnival’s share price has fallen by more than 80% since the start of the year.

Shareholders may expect remuneration committees to review their approach to pay and apply discretion when deemed appropriate. The use of discretion to override the formulaic outcomes of incentive pay plans to ensure the alignment of pay with performance and the shareholder experience is increasingly expected by institutional investors, and shareholders may pay close attention to a company’s response to COVID-19 and CEO pay.

Last Updated: 20 March 2020
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