Companies should not reduce or rebase their dividends "unnecessarily" and reflect any dividend cancellations or changes to employee pay in their executives' pay, the Investment Association (IA) said in an open letter to FTSE 350 firms.
The trade body wrote to the chairs of the UK's largest companies on behalf of its members pledging to support British businesses through the coronavirus crisis, but outlining a list of demands in return.
The letter, signed by the IA's director of stewardship and corporate governance Andrew Ninian, said firms must "demonstrate they are well run and take a long-term view of how they treat their employees, communities, suppliers, pension savers and customers".
"Our industry's role is to cut through economic uncertainty and market volatility, to work with and support good businesses that produce sustainable long-term value for savers and investors," Ninian wrote.
"Our members are not here to take short-term decisions or to capitalise on companies or people in distress."
The letter outlined five areas of focus for companies, which included dividends and executive pay. A number of companies, including the high-profile example of the banking sector, have chosen or been forced to cut or reduce their dividend payments.
Prudent approach to dividend payments
The IA said its members supported guidance from the Financial Reporting Council that told firms to consider its financial position at the time its dividend is paid, not only when it is declared.
Further, it said companies should consider the suitability and sustainability of payouts in light of current uncertainties, including ensuring employees and suppliers can be paid.
However, it cautioned: "While IA members expect companies to take a prudent approach to current and future dividend payments… shareholders would be concerned if companies unnecessarily reduced or rebased the dividend level."
Those that do decide to suspend dividends should restart "as soon as it is prudent to do so". "Ultimately, shareholders expect companies to be transparent about their approach to dividends, particularly, if they are seeking additional capital."
Further, the IA noted "executive pay should continue to be aligned to company performance", including decisions on both dividend cuts and making significant changes to their employees' pay.