Aon announced it will temporarily cut the pay of the company’s named executive officers by 50 percent in response to the COVID-19 crisis.
In addition, 70 percent of its global workforce will see a 20 percent reduction in their salaries, while approximately 30 percent of Aon colleagues will see no reduction.
The broker also vowed not to lay off workers during the crisis.
Gregory Case, chief executive officer; Christa Davies, chief financial officer; Eric Andersen, president; John Bruno, chief operating officer; and Tony Goland, the company’s chief innovation officer, have agreed to a temporary 50 percent reduction in their base salary from May 1, 2020 through Dec. 31, 2020, or until another date is determined by the company, according to a filing with the Securities and Exchange Commission.
Further, the company’s non-executive directors have agreed to a temporary 50 percent reduction in their cash compensation during the same time period.
In addition to the payroll actions, Aon said it would be reducing expenditures on contractors and discretionary expenses not related to client service, and pausing a share buyback plan.
Managing Expenses Through Salary Cuts
“Typically insurance brokers have managed through economic slowdowns with workforce reductions, and in this case the company has said that no one will lose their jobs due to COVID-19, so instead they are looking to manage expenses through these salary reductions,” said a bulletin on Aon, published today by Wells Fargo Securities. “This is the first employee pay reduction in the history of Aon. It will be interesting to see if other brokers follow suit; our assumption is they might.”
In an April 27 letter to employees, which was included in the SEC filing, Case said, Aon has committed that no one at the broker is going to lose their job because of this COVID-19 outbreak. “Bringing the best of our firm to clients requires every single one of our colleagues, and we are committed to an approach that allows all of us to continue supporting that mission,” he said.
Case said these actions were taken because of the nature of the “unprecedented lockdown.”
“There is no question that it would be easier to wait and see how significant the coming economic downturn will be, but that puts the future of our firm at risk. Some might argue it would simply be easier to layoff a subset of our colleagues, but that would put our ability to serve clients at risk,” Case wrote.
He acknowledged that the world is experiencing “a humanitarian tragedy at a scale that is difficult to comprehend.”
“While we hold on to glimmers of hope that the worst of the human impact may have passed, the economic consequences are likely to play out for months or even years to come, which presents us with difficult decisions in the near term.”
He cited the gloomy fact that the global economy is forecasted to shrink by about 3 percent for all of 2020 as a factor behind the executive team’s decisions.
“In Europe, recent reports project 59 million jobs affected, with more than a quarter of all private sector employment in the EU and UK impacted. In Asia, millions are projected to be out of work as China recovers from its first quarter of negative economic growth in over 50 years. In the United States, some project that nearly one-third of American workers – nearly 47 million people – could lose their jobs before this crisis ends,” he said in the letter.
Case said this global lockdown is affecting major sectors of the economy.
“In some sectors, organizations have seen nearly all their business disappear in an instant. Airlines have idled most of their fleets. Hotels are all but empty. Retailers have shuttered their storefronts and resorted to layoffs on a massive scale. Energy companies are pressured as demand plummets. Banks are bracing for a torrent of clients unable to repay debt, with the top 5 U.S. banks alone expanding their loan loss reserves to five times greater than normal,” Case continued.
“Taken together, these trends point to a significant and sustained economic downturn. It’s possible that we’re wrong about the gathering financial storm, but our analysis tells us that we need to act, and that presents us with a choice: do we eliminate jobs, or do we find an alternative that protects our colleagues and serves our clients?”
Case said the company is taking these actions to “protect jobs and preserve our ability to best serve our clients” and does so “from a position of exceptional financial strength.”
Aon is planning to acquire Willis Towers Watson — a deal that is scheduled to be completed in the first half of 2021. Neither company has yet discussed how the crisis will affect the future of the deal.
On March 19, a chief competitor of Aon’s also announced it would avoid layoffs. Marsh & McLennan CEO Dan Glaser pledged to secure the jobs of all 76,000 global employees in its insurance and risk management, human resources, management consulting and reinsurance brokerage businesses. He also announced a $5 million fund that would offer grants to employees facing financial hardship.
*This story ran previously in our sister publication Insurance Journal.