New research from Aston University and the University of Sheffield has found that executives at FTSE 350 companies that accepted government support during the pandemic have been receiving larger increases in executive pay than other companies.
The research also found that few UK Government Covid support schemes contained restrictions on executive pay or capital distributions to shareholders such as dividends and share buybacks. Furthermore, those restrictions that did apply were limited, subject to exemptions and characterised by weak enforcement.
Experts say although the UK government’s financial support to businesses during the COVID-19 pandemic was widely justified as necessary to protect jobs and livelihoods and to ease the financial burden for businesses and the population, they suggest that this may not tell the whole story and raises important questions about the redistributive effects of government subsidies.
The report by Aston University’s Centre for Health and Society and Sheffield University Management School reveals that in many cases companies that received and did not repay grants under the Coronavirus Job Retention Scheme (CJRS) made large profits and then awarded executives large pay rises and paid out large sums in dividends to shareholders.
For example, five companies that furloughed employees in 2020/21 generated £6.5 billion in profits in that year, while the five highest dividend-paying companies that held on to CJRS grants received in 2020/21 paid out £1.3 billion to shareholders in that year. Additionally, a significant portion of the shareholdings of these companies are owned by overseas investors.
The report highlights a similar pattern with Business Rates Relief, which covered companies in the retail, leisure and hospitality sectors. Just five companies that accepted business rates relief in 2020/21 generated a total of almost £5 billion in profits (EBITDA), while the five highest dividend paying companies that accepted the relief in 2020/21 together paid out £540 million to shareholders in that year.
Dr Gary Fooks, from the Centre for Healthy and Society at Aston University, said:
“The government’s financial support to businesses during the pandemic played an important role in mitigating its economic impacts .
“However, as the report shows, there is a need to examine the redistributive effects of such support and ensure that it’s not siphoned off to support outsized executive pay packets or to reward company owners.
“The effective absence of restrictions on executive pay, shareholder dividends, and share buybacks in government support schemes like CJRS essentially gave companies the power to determine their own priorities, often resulting in significant pay-outs to executives and shareholders.
“The lack of restrictions (on executive pay and capital distributions to shareholders) raises important questions about who decides where the line between private gain and public benefit should be drawn. Poor scheme design has allowed less scrupulous companies to enrich owners and senior executives with public money.”
“We’re calling for government supports to companies to be conditional on restraint of executive pay and capital distributions to shareholders, a commitment to paying a fair effective rate of UK corporation tax, and ‘fair-pay plans’, which seek to reduce the gap between high and low earners within companies. These are all sensible recommendations that take account of the deep reliance of companies on government support, which we’re likely to see more of moving forward.”
Dr Tom Mills, a lecturer in sociology and policy at Aston University and co-author of the report, said:
“In a narrow sense, our findings underline the importance of policymakers attaching clear conditions to government support on executive pay and capital distributions to shareholders, with appropriate transparency enforcement mechanisms.
“However, they also raise bigger questions about the relationship between corporations and society, and the potential role that government assistance, grants, and public procurement can play in ensuring companies and our broader economy are managed in the long-term interests of society.”
Dr Killian Mullan, a lecturer in sociology and policy at Aston University and co-author of the report, said:
“The pandemic highlighted the underlying reliance of UK businesses on government support, which socialised business risks and, ultimately, underwrote corporate profits.
“However, although the scale of pandemic-related support was exceptional, ‘corporate welfare’ generally is the norm. Many UK companies owe their success to it in one form or another.
“It is, therefore, imperative that companies, in turn, seek to act in the wider public interest.”
You can read a summary of the findings in an associated Policy Brief (accessed here) and Executive Summary (assessed here). The full report, Who Gained, who Lost? The Distributional Impact of COVID-19 Government Support for Business, can be accessed here. An interactive dashboard of showing which companies received supports by value can be accessed here.
Selection of Key Findings
Executive pay awards at FTSE 350 companies in 2021/22 reversed a declining trend in pay dating back to 2016/17. Big increases in annual bonuses and long-term incentive payments took executive pay well beyond pre-pandemic levels (see Figures in the Policy Brief and Executive Summary).
The bounce-back in executive pay in 2021/22 was greater at companies that participated in several government support schemes. Chief Executive and Financial Officers (CEOs and CFOs) at FTSE 100 companies in receipt of grants under the Coronavirus Job Retention Scheme (CJRS) had a significantly higher increase in total executive pay compared with those at FTSE 100 companies that did not furlough employees. CEOs and CFOs in FTSE 250 companies that received support under CJRS and deferred tax had a significantly greater increase in annual bonus payments in this period (see Figures and summary of findings in the Policy Brief and Executive Summary).
There were generally no statistically significant relationships between repayment of CJRS grants and Business Rates Relief and profits, executive pay or dividends. In other words, there were no clear differences between the groups (repayers and non-repayers) with respect to profits, executive pay or dividends (see Private Gain of Public Benefit in the Executive Summary.
- Several companies that held on to CJRS grants and BRR reported large profits, dividend payments and generous executive pay.
- The 5 highest dividend paying companies that held on to grants under CJRS received in 2020/21 (at a total value of £352 million) paid out £1.3 billion to shareholders in that year. Significantly, a large proportion of the shareholdings of these companies are owned by overseas investors.
- CEOs at 5 companies which did not pay back grants taken under CJRS in 2020/21 received increases in total pay above 99% between 2019/20, before the economic disruption caused by the pandemic took effect, and 2021/22. The largest increase in total pay over the period was 260%. This went to the CEO of transport company, FirstGroup, which received (and retained) over £50 million under CJRS.
- A similar pattern applied to Business Rates Relief, which covered companies in the retail, leisure, and hospitality sectors. Just 5 companies that accepted business rates relief in 2020/21 generated a total of almost £5 billion in profits (EBITDA) in 2020/21. The 5 highest dividend paying companies that accepted the relief in 2020/21 paid out £540m to shareholders in that year.
