"Management must also feel COVID-19 pain in their wallet"

Published on: 25 March 2021

When we think of a bonus during the COVID-19 pandemic, we tend to think of healthcare staff rather than senior executives. Yet some companies reward management, while employees, suppliers and shareholders suffer from the crisis. As a large investor, APG tries to influence the remuneration policy of listed companies. Mirte Bronsdijk explains how.


A Teams meeting with supermarket chain Ahold Delhaize. Topic on the agenda: the bonus of senior management during the COVID-19 pandemic. A lengthy dialog with publishing company Wolters Kluwer about the remuneration policy, which has finally paid off this year. Or vote against the Starbucks CEO's retention bonus at the US coffee group's shareholders' meeting. That fifty million (!) dollars will buy you a lot of caramel macchiatos or frappucinos. 

These are just a few examples of the influence that APG, as a large investor, tries to exert on the remuneration policy of the companies in which investments are made on behalf of the pension funds. The remuneration of company management has always been an important theme for many institutional investors, such as pension funds, but this year in particular; many companies are hit hard by the COVID-19 crisis and some need government support, while others experience a rise in turnover. But how does that affect the remuneration policy? What relevant questions will APG be asking the supervisory boards - responsible for awarding remuneration - and during the shareholders' meetings that will take place in the coming months?

The remuneration policy of Dutch listed companies must receive at least 75% of the shareholder votes. When will APG vote against remuneration proposals? We ask Mirte Bronsdijk, a specialist in corporate governance at APG.


How does APG view the remuneration policy at companies that have been hit hard by the pandemic? 

"In addition to the APG voting policy, we follow the position on executive remuneration from the 2021 Key Policy Letter of Eumedion, the platform for institutional investors. If a company receives state aid, has canceled the dividend or has to lay off employees, we expect management to share in that 'pain'. For example, by lowering the salary or canceling the bonus. That seems obvious, but it isn't. For instance, the supervisory directors of a European real estate group still want to give the CEO a bonus, while the operating results and therefore the employees, tenants and shareholders have suffered heavily from the COVID-19 crisis. This damages the reputation and undermines public support and trust in the company. Supervisory directors must have social feelers, but they are apparently lacking in this respect. On the other hand, there are examples such as beer manufacturer Heineken and temporary employment group Randstad, where the fall in profits led to the CEO's annual bonus being scrapped."


Some companies had a good year during the lockdown, such as Ahold Delhaize and PostNL. Didn't those bonuses come very easily to the CEOs of those companies?

"True, you may ask yourself whether those good performances can be directly attributed to management, or were simply a result of the lockdown. After all, this automatically drives consumers into the arms of supermarkets and online shops. Also, a bonus can be perceived as inappropriate in this day and age as many companies and people are struggling. So you have to ask yourself whether the normal remuneration policy should be applied in full during the COVID-19 crisis. Supervisory directors may deviate from this in exceptional circumstances by awarding higher or lower remuneration. We're discussing this, also at these two companies. At Ahold Delhaize, we conduct this dialog on behalf of several institutional investors who have united in Eumedion. We don't tell you to scrap or reduce a bonus, but we do urge you to be critical and restrained in the application of the remuneration policy. Engineering firm Arcadis is a positive example. Their shareholders have had a good year despite COVID-19, but CEO Peter Oosterveer has nevertheless waived his bonus."


When you talk to the supervisory directors, what specific questions do you ask about executive remuneration?

"Questions such as: why do you think that bonus should be paid out? Is that bonus explainable, especially now, with COVID-19? How does the CEO's pay compare to the average employee's pay? Have you also included the impact on and interests of other stakeholders of the company in your considerations? We expect a good explanation on those points. We also call on supervisory directors to consider not only financial results when awarding remuneration, but also criteria such as sustainability and employee and customer satisfaction. Actually, we ask supervisory directors to also be guided by their social antenna in the remuneration policy, because we've noticed it is not always properly adjusted. We also expect supervisory directors to provide a good explanation of the policy in the remuneration report. In that report, they must indicate how they've taken 'social acceptance' into account. As shareholders, we can use an advisory vote to indicate whether or not the remuneration report meets our expectations."  


Shareholders, including APG, recently voted out the $ 50 million retention bonus for Starbucks CEO

Do companies listen to you?

"If the remuneration policy or remuneration report is inconsistent with our policy and expectations, we vote against the remuneration proposals at the shareholders' meeting, or against the appointment or reappointment of supervisory directors who determine the remuneration policy. If necessary, we seek cooperation with other investors to stand up to the policy. Shareholders, including APG, recently voted out the retention bonus for Starbucks CEO, for instance. The CEO already earned $ 14.7 million in 2020 and would also be promised another $ 50 million to motivate him to stay on until the 2022 tax year. Such a retention bonus is like giving a child an ever-increasing bag of candy just to keep doing his best. Entirely wrong, of course."


And examples from the Netherlands?

"Last year, Ahold was voted against, partly because of the reduction in the importance of sustainability in determining the remuneration. Last year, we also voted against Wolters Kluwer's remuneration policy. Executive Nancy McKinstry is a big earner in the AEX, the most important Dutch stock market index. We've been discussing the remuneration policy with the company together with other large investors for a number of years. It has now been announced that McKinstry will earn more than 10% less from 2021. Also, the company no longer looks mainly at American companies to determine the amount of the remuneration, but also at a larger number of European companies. Environmental, social and governance performance and return on invested capital will also be taken into account when determining long-term benefits. This time, Wolters Kluwer did clearly listen to shareholders."


We're at the eve of a season of shareholders' meetings. Will it be a hot spring for the dialog and voting behavior on executive remuneration?

"To be honest, I think the spring will be less hot than usual. In any case, Dutch companies remunerate less extreme than in many other countries. Also, companies that currently receive state aid are not allowed to pay out bonuses and their targets are often not met due to poor results on account of the pandemic. For example, the remuneration of the CEO of Shell decreased by 42% last year. As a result of COVID-19, there are therefore fewer big earners than usual to participate in the discussion about remuneration. But there are still plenty of companies left where we continue to insist on shortcomings in the remuneration policy. Especially in the United States. Because of the different remuneration culture, we see more excesses." 


Click here to find out how APG votes on remuneration and other agenda items at shareholders' meetings.