John blogged last month about the striking performance benefits that appear to be associated with CEO pay cuts. Since that blog ran, we’ve received a few posts on our Q&A Forum about how to disclose voluntary pay reductions. Here’s one (#1,431):
If an NEO declines a portion of his salary for the most recent fiscal year, shouldn’t the full salary amount (which was determined by the Compensation Committee before his election to decline a portion) be reported in the SCT?
Wouldn’t the same be true for the value of cash incentive awards and equity awards which had been established/granted by the Compensation Committee prior to the NEO declining a portion of them? Does it matter if the payout on the awards (based on achievement of various metrics) had not yet been determined at the time he declined?
A member responded:
When this has come up in the past with a bonus, we included the full amount and explained in the footnote that the amount was declined.
John also chimed in:
That’s what I’ve seen as well. There’s usually some sort of discussion in the CD&A about what base salary the Comp Committee has approved if an NEO has declined a pay increase. See this Logitech proxy statement.
There will be a few disclosure examples to follow on this general topic as we move through this year and next year, including Intel and Apple. In the proxy statement that Apple recently filed, the company disclosed that Tim Cook had recommended a 40% reduction in his target total compensation for 2023, and what the compensation committee expects to do in future years. See this excerpt from page 11:
Mr. Cook’s 2023 target total compensation is $49 million, a reduction of over 40% from his 2022 target total compensation. Taking into consideration Apple’s comparative size, scope, and performance, the Compensation Committee also intends to position Mr. Cook’s annual target compensation between the 80th and 90th percentiles relative to our primary peer group for future years.
– Liz Dunshee, CompensationStandards.com, February 1, 2023
