Aon, the global insurance and reinsurance broker, has made a decision to end the previously announced temporary salary reductions of up to 20%, effective July 1st, 2020 and to repay colleagues in full, plus 5% of the withheld amount.
Towards the end of April, re/insurance broker Aon introduced a 20% salary cut to the majority of its international workforce in response to the impacts of the ongoing COVID-19 pandemic.
Now, the broker has said that based on observations and analysis over the last four months, it is confident that “temporary salary reductions are no longer necessary to meet this commitment to 50,000 colleagues.”
Aon says that this decision isn’t related to any near-term change in its financial performance or expectations, but is supported by three main reasons.
The first is the fact that although global GDP and unemployment trends clearly remain negative, and are in fact materially worse than other downturns, Aon’s expected likelihood of worst-case macroeconomic scenarios has decreased significantly.
Second, says Aon, is the fact that the resilience of the core business, while impacted, has been demonstrated as was expected.
The third reason Aon has decided to reverse its temporary salary cut is related to the strength of the Aon United strategy, which the firm says has shown to be effective during the current crisis despite volatility.
“The Company believes the overall macroeconomic uncertainty and downside are somewhat less significant than anticipated, and therefore is ending this aspect of its operational flexibility plan,” says the broker.
Importantly, other components of the plan announced back in April, such as expense discipline, pause in share buyback and new merger and acquisition activity, alongside temporary salary reductions of 50% for Aon’s named executive officers, and a 50% reduction in cash compensation for the Board of Directors, are to remain in place at this time.
Aon says that it expects to accrue the expense for salary repayments in Q2 2020 and make repayments to employees in Q3 2020.
In response to Aon’s announcement, analysts at Keefe, Bruyette & Woods (KBW) have said that while the repayment and 5% bonus should somewhat alleviate hard feelings, they still expect both employee and client ‘leakage’ in the early days of the company’s Willis Towers Watson (WTW) acquisition.
Over the longer-term, KBW expects Aon’s management team to create significant value from the deal, “reflecting enhanced scale and considerable margin expansion potential.”