PERSPECTIVE3-5 min to read

A new social contract - how are companies treating their employees as the Covid-19 crisis unfolds?

Companies’ treatment of their employees has been under intense scrutiny. This will intensify as lockdowns start to lift, and expectations of corporate behaviour are high.



Katherine Davidson
Portfolio Manager and Sustainability Specialist

The Covid-19 crisis has thrown companies’ treatment of their stakeholders into sharp focus. The early phase of the crisis saw many companies focus on efforts to help wider society. Numerous firms, from distillers to automakers, repurposed production lines to make hand sanitiser, ventilators, or personal protective equipment (PPE). Meanwhile, others made donations – of products or cash - to healthcare research or social causes.

At the same time, companies that were deemed to be acting improperly have seen swift pushback. A prominent recent example is restaurant chain Shake Shack. After public rebuke, the company returned a $10 million government loan it had claimed from a US government programme designed to help small businesses.  

We have written previously that we think a new social contract will emerge as the Covid-19 crisis changes relationships between companies and their stakeholders. The use of government support schemes, and the trade-off in terms of shareholder returns or executive pay is one example. The treatment of employees is another that has garnered increasing focus during the lockdown.

Frontline or breadline?

While many employees with desk jobs (including most investors) are able to work from home, it’s a very different picture for those deemed to be essential workers.

This crisis has highlighted that there is a whole tranche of the labour market whose importance may have been previously overlooked – and is certainly not reflected in their pay. Supermarket staff, delivery drivers, warehouse personnel, and employees of food manufacturers and processors are just some of the new ‘frontline’ staff who are critical to keep the economy ticking over.

And while doctors and nurses are the new national heroes, there is growing awareness that the smooth running of health and care services also rely on so-called ‘low-skilled staff’ such as hospital porters, cleaners, and care home staff.

These employees are often working in environments where interaction with customers or patients poses a particular hazard. Companies in these sectors have faced fierce scrutiny over provision of PPE and safeguarding of staff.

Amazon, for example, has faced widespread protests over conditions for warehouse staff, despite spending $4 billion on safety measures. UK clothing retailer Next temporarily closed its ecommerce arm in March, enabling a redesign of warehouses for social distancing at the expense of significantly reduced capacity.

Widening the (safety) net

As economies gradually re-open, and a vaccine remains elusive, companies in ‘non-essential’ sectors will also need to consider these challenges. While governments and regulators will provide guidance, the onus is on companies to provide a safe environment for employees as well as customers. In a recent survey by JUST Capital, nearly 90% of respondents believe that companies should provide PPE, sanitise workplaces and institute social distancing.

The good news is that companies seem well-aware of their responsibilities – whether out of good governance or fear of public backlash. The chart below shows CFO responses to a survey carried out by PwC about their companies’ back-to-work plans:


The most urgent are measures to address specific safety issues related to the crisis. Offices, shopping centres and restaurants are rushing to find innovative solutions to social distancing requirements, from one-way systems to screens between tables.

Others, such as remote and flexible working, look likely to be in place more permanently. A number of tech companies have already extended ‘WFH’ indefinitely, and Schroders’ London offices remain tumbleweed territory despite relaxed government guidelines.

While easier for some industries than others, many workers have long desired greater flexibility, but perhaps been afraid to ask for it. Companies that embrace the new normal, and make the necessary investments in technology, are likely to be rewarded with a happier, more motivated – and potentially more productive – workforce. They will likely also find it easier to recruit. Even before the crisis, UK research found 70% of all employees say flexible working makes a job more attractive, rising to over 90% of millennials.

Beyond physical safeguarding, some employers have also taken steps to protect or improve employees’ financial health. Many of the essential worker jobs mentioned above are low paid, especially in light of the potential health risks being borne. The chart below from JUST Capital considers the types of financial assistance being provided by the top 100 US public companies to their employees.


As we can see, the chart shows 20% have temporarily increased wages and 18% have paid a one-time bonus. Some companies in essential industries - including most UK and US supermarkets – have introduced “hazard pay” for frontline staff.

While undoubtedly welcome in a time of need, temporary “hazard pay” will do little in the long term to permanently lift wages at the bottom of the pyramid. Many companies are now facing criticism over schemes expiring at the end of May, while the health risks are still front-of-mind. Only 1% of JUST’s 100 (i.e. one company – Charter Communications) has so far taken the step of permanently increasing wages. However, pressure from unions, regulators or customers may ultimately result in more of these temporary wage increases enduring beyond the crisis.

The Economist has noted that pandemics through history  – from the Black Death to the Spanish flu – have generally resulted in a shift in returns from capital to labour in the form of much higher real incomes for workers. The mechanism, however, was brutal: by decimating the working age population, these crises increased the bargaining power of surviving workers. The economy today is obviously very different – and we certainly hope that the scale will be much, much smaller - but Covid-19 may come to represent a tipping point for rising inequality. 

While we welcome this from an ethical point of view, as investors we must also consider how any wage increases would be paid for. Does the company have pricing power, enabling it to raise prices without denting demand or profits? This would be enhanced if there is public ‘buy-in’ for higher wages, implying a willingness to pay higher prices for goods from companies seen as acting responsibly during and beyond the crisis. Would employees become more motivated and more productive? Or would higher wages simply translate into reduced profitability and returns? Outcomes will vary by company and industry, making detailed analysis crucial.

Update: stocks with higher ESG rankings continue to outperform

The Covid-19 crisis will have long-term ramifications and it will take some time for the impacts to play out in share prices. However, to date the evidence for US equities (see chart below) has supported our conviction that responsible companies should be more resilient in a downturn and outperform over the cycle.

Since we discussed this in March, we have seen the 20% of stocks with the highest ESG (environment, social, governance) scores continue to outperform the broader market. The outperformance has been less marked than in the initial market falls as we have seen a rotation into higher-risk and more economically-sensitive stocks, but remains material.


This is partly because ESG leaders have so far seen smaller earnings per share (EPS) downgrades  than ESG laggards, as shown in the chart below. Since March, the scale of the downgrades has risen significantly for both groups, but the difference remains evident.


This continues to support our view that companies which are the most sustainable will outperform their less sustainable peers over the long term. As investors, we focus on identifying those companies that have the best potential for sustainable growth, underpinned by strong relationships with their stakeholders.

Issued in the Channel Islands by Cazenove Capital which is part of the Schroders Group and is a trading name of Schroders (C.I.) Limited, licensed and regulated by the Guernsey Financial Services Commission for banking and investment business; and regulated by the Jersey Financial Services Commission. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.



Katherine Davidson
Portfolio Manager and Sustainability Specialist


Cazenove Capital is a trading name of Schroders (C.I.) Ltd which is licensed under the Banking Supervision (Bailiwick of Guernsey) Law 2020 and the Protection of Investors (Bailiwick of Guernsey) Law 2020, as amended in the conduct of banking and investment business. Registered address at Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 3UF, (No.24546) . Schroders (C.I.) Limited, Jersey Branch is regulated by the Jersey Financial Services Commission in the conduct of investment business. Registered address at IFC1, Esplanade, St Helier, Jersey, JE2 3BX, (No.31076).

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