Aon will end the salary cuts implemented in May as a response to the economic uncertainties caused by the COVID-19 pandemic.
Effective July 1, Aon ended the salary cuts and will colleagues for the lower pay, although a 50% base pay reduction for named executives will continue, confirmed a research note issued by Wells Fargo Securities.
Aon announced on April 27 that it would temporarily cut the pay by 50% of the company’s named executive officers, while 70% of its global workforce had their salaries reduced by 20%. Approximately 30% of Aon employees saw no pay cuts.
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, agreed to a temporary 50% reduction in their base salary from May 1, 2020 through Dec. 31, 2020, or until another date was determined by the company.
“At the time, Aon thought that they needed to take more aggressive expense action in response to the potential slowdown in organic revenue growth due to the uncertainty of the impact of COVID-19,” said Wells Fargo Securities on June 30.
“The AON shares should positively respond to this announcement as we believe investors were thinking that the base pay cuts implied that they might see a sharper revenue slowdown than other insurance brokers,” the research note continued.
More Positive Outlook
Wells Fargo Securities is expecting a better outlook for brokers because higher prices are providing a tailwind to help offset the impact of COVID-19.
In research notes issued on June 24 and June 17, Wells Fargo Securities cited the example of broker Arthur J. Gallagher (AJG), which during its recent investor day, said that premium price increases “are getting incrementally better as each month goes on.”
“Price increases that AJG is seeing are helping to offset the exposure impact of COVID-19. Pricing is up 6-7% overall with property +10%, professional lines +7%, and other casualty up in the low-to-mid single digits,” said the June 17 research note.
“AJG’s stronger organic outlook should translate into stronger revenue from other insurance brokers when we get into Q2 earnings,” said the note issued on June 24. “Gallagher is seeing price offset exposure declines and new business levels hold up, which we would expect from other brokers.”
Source: Wells Fargo Securities
*This story appeared previously in our sister publication Insurance Journal.