It’s that time of year again: time for refreshing the IR plan and the budget.

In the past, the IR budget may not have had much scrutiny. After all, at mid- or large-cap companies, the headline budget number for IR is small relative to other finance departments, with IR budgets typically between $600,000 and $1 million when salaries are included. IR value can be easily justified if you are in a capital raising context (especially when others are being paid significant fees). And typically, about 30% (or more) of the IR budget may be tied up in salary, making it challenging to extract meaningful cost cuts relative to other departments without eliminating staff. For all these reasons, CFOs – who understand the contribution good IR can make to lowering the cost of capital – typically don’t spend a huge amount of time reviewing well-thought out IR budgets.

With so many things going on right now, it is always tempting to look at the last plan and budget and just try to refresh the prior year’s numbers.

Here are a few reasons why that may not be the best approach this year.

‘Life as we knew it’ has changed. Some companies are struggling, with costs (including compensation) and balance sheets under scrutiny by analysts and investors. Cutting staff may be risky and IR may be seen as more important than ever in times like these. However, in small caps under pressure, that may not be enough to stop CFOs from asking, at the extreme end, if they can take on more IR themselves or, more likely, requesting that IR squeeze a $400,000 budget. There may also be some discussion about extending any salary reductions agreed to in 2020.

With salary being the most significant expense in IR, departments with a larger number of staff may find themselves under pressure to streamline work, despite the fact that the demands from investors may have increased. A clear articulation of the activities to be performed by team members may be a useful guide when you are being asked to keep your budget unchanged.

The demand for ESG reporting and engagement has intensified, not decreased, and the need to clearly articulate your future strategy is likely more important than ever. These factors may be putting additional pressure on resources and ‘doing ESG’ off the side of your desk may not be sustainable for much longer. If you were planning to hire, you may come under pressure to consider more flexible external resourcing of the work, rather than bringing on a full time, in-house resource. A solution may also be to create a shared position with another department. In addition, while recruiting has slowed and people have been loathe to change jobs in 2020, the job market is showing signs of picking up. If you have a team of people whom you want to retain, be prepared to negotiate to keep them. If you can’t retain them, be prepared to justify filling the roles – as well as the inevitable recruiting costs.

Beyond salaries, the costs that you incurred last year may no longer be the right ones.

In 2018, investor meetings accounted for 11% of a typical IR budget (source: CIRI 2019 Investor Relations Compensation and Responsibilities Survey). Much of that is associated with travelling to investor meetings. The shift of IR marketing to all virtual and to virtual events is forcing us to look at the technology requirements (IT, telephony/conference calls) and logistics coordination needed to make this happen. With the move to virtual, and in-house resources performing some of the activity that the banks’ corporate access teams have done previously, certain costs may be higher – although reduced travel expenses (at least for the first part of 2021) should more than compensate for this. There may also be a case to make for more formal research or perception studies to replace the ‘conversations by the elevator’.

You may also want to look at the changes going on with respect to investor targeting data. In a recent LinkedIn post, Charles Hamlyn, Managing Director of the UK-based investor intelligence firm Quantifire, noted "now that IR programmes have effectively gone virtual, the ‘new normal’ for connecting companies and investors seems certain to become much less reliant on good relationships and much more reliant on good data. There is a huge amount of exciting development going on with innovative businesses deploying dramatically more efficient solutions for connecting companies and investors.”

Desk research will also be important for investors attending fewer conferences. Staying on top of your website and adding information such as conference replays, transcripts or a good investor intro deck is a fine way to ensure you are engaging investors researching the company for the first time. As you budget, consider whether you have the ability to develop, maintain or improve these IR communication tools or whether you need to up your game by investing more here.

In the past, you may have budgeted for a face-to-face annual general meeting, investor day or site visit. As we look to 2021, the likelihood of these types of activities remains uncertain. Certainly 2020 has given most of us a pretty good idea of the costs associated with conducting a virtual AGM. However, there is still consideration to be given to the value of conducting a virtual investor day or site visit – or whether it is best to wait until late 2021 or early 2022 to do these activities face-to-face. If you decide to go ahead, there will likely be pressure to deliver the event at lower cost, requiring a serious rethink of the costs and project management involved. Keep in mind that any concessions you make now will have to be fought for if you want to reinstate them in 2022. If you can, plan certain costs in Q4 2021 to maintain some leverage going into next year’s budgeting process.

Most IR budgets include some outsourcing to external suppliers – or to other departments internally. Finance teams will be looking for evidence that you have benchmarked your contracts with existing suppliers or discussed renewal terms with them. If you are reliant on costs budgeted by other departments (e.g. annual reports or AGM costs often sit outside of IR budgets), budget time is a good opportunity to ensure everyone is aligned regarding what items you see as crucial to the IR audience.

As you consider 2021, take the time to think through what needs to be different in your IR program and how your cost structure needs to change. A budget that is linked to clear objectives and deliverables, particularly one that makes a clear link to retaining investors through a challenging time and lowering the company’s cost of capital, will always fare better during a corporate cost review.