Is it unfair to ask executives to take pay cuts for a sustained period?

Interpublic is extending its salary reductions to end of year.

Pay cuts: high earners have bills to pay, like everybody else (Getty Images)
Pay cuts: high earners have bills to pay, like everybody else (Getty Images)

Interpublic announced this week that, amid the economic downturn resulting from Covid-19, it expects its executive pay cuts will remain in place for the rest of 2020. This applies to the roles of vice-president or above at holding group level, with reductions of up to 20%. It is thought that the number of staff affected is in the high double digits.

This decision is in contrast to WPP and Publicis Groupe, both of which have ended their salary sacrifices. At WPP, 3,000 executives took pay cuts for three months at the start of the second quarter; Publicis introduced salary reductions for high earners for up to six months (with the UK operation ending those cuts after five months).

Omnicom has not made clear whether its pay cuts, implemented in April, are coming to an end, although its chief executive took the biggest reduction of all – John Wren waived 100% of his salary for six months.

Salary sacrifices for management are not unique to the advertising industry, of course. According to the High Pay Centre and Chartered Institute of Personnel and Development’s annual FTSE-100 pay report, 36 chief executives had seen reductions in their remuneration packages this year, with 14 taking 20% pay cuts.

During this downturn, there have been furloughs and redundancies across adland. It is undoubtedly a torrid time for junior employees either experiencing the uncertainty of furlough or trying to find a job in a dire market. The end of the furlough scheme this month could lead to yet more job losses. Many would agree that taking a pay cut is the least that management could do; a 20% reduction is hardly likely to have the same negative impact for someone on £100,000 compared with someone on £20,000.

But for how long? After all, senior executives still have mortgages and bills to pay. It can be argued that they have worked their way up and are entitled to the salaries detailed in their contracts. They may earn more, but that doesn’t necessarily mean they could or should accept a pay cut for a prolonged period.

And isn’t there a difference between a chief executive, who might be able to bear a cut to their significant level of pay for a while, and those in middle management, who are on lower salaries but are still forced to accept a reduction?

Kathleen Saxton

Executive vice-president and managing director, EMEA, MediaLink

Unprecedented times called for unprecedented actions, and when companies across our industry introduced sweeping temporary pay cuts earlier this year, as a means to sustain as many jobs as possible while the pandemic took hold, it was, in the main, accepted with collective humility. So, as the final quarter comes in to view and the annual pressure returns to report year end and lay down 2021 budgets, we must be mindful, as we proudly discuss our ability and desire to hold or grow margin through crisis, of our people who may now be mentally or financially struggling.

Each company will have its strategy and reasoning for the timing of its reinstatement of pay, no doubt based on a deeper desire to avoid revisiting salary or job cuts further in 2021.

Crucially, what we must remember is that the possibilities for the progress and recovery we make post Covid will lie singularly in the hands of our talented people, so while shareholder or investor value is, of course, imperative (and often regretfully misunderstood), we must be as proud of the way we respect and manage our greatest asset as we are of the fiscal results we wish to report.

Magnus Djaba

Global president, Saatchi & Saatchi; chief executive, creative practice, Publicis Groupe UK

There is no such thing as a generic response to Covid-19. Its effects have differed for individuals, communities, businesses and nation states. For example, the UK's 20.4% contraction makes it the worst hit of the major economies. In the UK, redundancies have surged to their highest level in more than a decade.

Leading an agency is akin to parenting. It's enormously rewarding, but there are times when tough love is required and times when you must make sacrifices. So, no, I don't think it's unfair. It's been hard on individuals who have had to delay payments on mortgages to manage on a lower salary, but if that means securing more jobs, that makes that sacrifice worthwhile.

Julie McKeen

Head of media, sport, gaming and media practice, Odgers Berndtson

As so often in 2020, the economic and the psychological are intrinsically linked. The question of executive pay cuts falls in my personal view into the same camp. The shared responsibility the public felt in staying home to protect the NHS was palpable and the shared responsibility employees at all levels felt to make personal sacrifices for the better long-term outcome of their employment was similarly accepted with broadly good grace.

Eight months on, however, employers and policymakers alike will need to show their people a clear, credible path to a better future if they wish to continue asking for personal sacrifice and be prepared to lead by example.

David Taylor

Benefits consulting director, Connor Broadley

What on first reading seems a question that has an "intuitive" response is more complex – it's more about the nature of leadership than executive pay strategy. Ordinarily (in other words, pre-Covid) executive pay is a relatively straightforward equation – you are responsible for the performance of your business and will be rewarded accordingly. Fundamentally, this hasn't changed, in that executives are paid to "respond, plan, lead, repeat" and are rewarded on the outcomes. An argument could be made, albeit not by me, that as this is more challenging than ever before, executive reward should be higher.

A leadership fundamental is do the right things and be seen to do them, with integrity and humility. Leaders are expected to be in the thick of the action, in touch with the "real world" and the embodiment of the company's values. As we all know, perception is everything. A number of high-profile companies have reduced executive pay, with some donating the reduction to pandemic relief, whereas others have publicised pay reductions while putting long-term executive incentives in place linked to share price (which could benefit from Covid-related market volatility).

So I would answer the question with further questions: how do you choose to lead your business and what messages do you want to send? Will you be able to defend your position when "new normal" becomes "old normal"?

Esther Carder

Partner, Moore Kingston Smith

No, I don't think it is unfair for agencies to expect executives to play their part in weathering this storm, particularly seeing as most people are spending less cash anyhow. I have many clients at companies where all levels of staff have willingly accepted pay cuts as a better alternative than some of their team being made redundant – a real sense of "we are in this together". Doing this at executive level rightly sends out a signal of shared responsibility.

However, it also seems reasonable they have the chance to earn the pay cuts back if certain performance levels are achieved or take bonuses on top if performance turns out to be better than expected. Pay cuts at executive level can also, no doubt, keep a fair few more junior staff employed, keeping that talent within the business for further down the line, as and when things recover.