Aon ends salary cuts, says Covid-19 downside “less significant than anticipated”

Insurance and reinsurance broker Aon has elected to end the staff salary reductions it had introduced back in April, saying that “the overall macroeconomic uncertainty and downside are somewhat less significant than anticipated.”

Aon had introduced a raft of pay cuts affecting its staff around the globe, as well as other expense saving initiatives back in April, as a way to mitigate the expected impacts from the Covid-19 pandemic related economic slowdown.

It had been thought that the insurance and reinsurance broking industry might face particularly acute pain as a result of the pandemic, but Aon is now saying its estimates were perhaps too severe and that as a result it can return staff to normal pay more quickly than expected.

Aon said today in a filing that it will “end the previously announced temporary salary reductions of up to 20%, effective July 1, and to repay colleagues in full, plus 5% of the withheld amount.”

It added that Aon remains committed to ensuring no employees lose their jobs due to the pandemic.

The brokerage said it is “confident that temporary salary reductions are no longer necessary to meet this commitment to 50,000 colleagues.”

Further explaining that, while global GDP and unemployment trends are still negative, and much worse than seen in many other downturns, Aon’s expected worst-case macroeconomic scenario has decreased significantly in severity.

The broker said that the resilience of its core operating business has been demonstrated through the pandemic, though impacts have been felt in certain areas of the business.

The company also said that its Aon United strategy has been effective in meeting the challenge set by the pandemic.

With the impacts from the macroeconomic hit and downside caused by the pandemic lower than Aon had expected, it is ending the pay cuts from July.

Other expense saving initiatives remain though, including expense discipline, a halting of share buybacks for the moment and any new merger and acquisition activity, as well as temporary salary reductions of 50% for Aon’s named executive officers, and a 50% reduction in cash compensation for its Board of Directors. All of these remain in place for now.

Aon said it expects to accrue the expense for salary repayments in the second quarter and make repayments to employees in the third quarter.

Analysts from KBW noted that, “Although the repayment and 5% bonuses should mitigate hard feelings, we still expect employee and client ‘leakage’ in the early days of the pending WLTW acquisition.”

There is already some evidence of a shake-up in certain areas of Aon, as the planning to combine with Willis Towers Watson accelerates.

But positively the analysts stated that, “Longer term, Aon’s management team should create significant value from the deal, reflecting enhanced scale and considerable margin expansion potential.”