COVID-19: Observations about Executive Compensation
A recent blog from Dan Ryterband at FW Cook serves as a reminder that the pay cuts we seem to read about daily for senior executives and non-management directors have been concentrated primarily among a smaller group of companies. Here’s an excerpt:
Approximately 10% of the Russell 3000 and less than 15% of the S&P 500 companies have taken action to reduce pay. There are two common threads among these companies, most of which are concentrated in the hardest hit industries:
– A need to preserve cash to enhance liquidity or to meet specific financial targets due to debt covenants or other requirements, and
– A sense of “shared sacrifice” between top leadership and the broad workforce if large numbers of employees have been laid off or placed on unpaid or reduced-pay furloughs
Typical pay mix for S&P 500 CEOs is heavily weighted toward performance-based pay, including multi-year equity awards, which is likely a primary reason we haven’t seen more widespread action to reduce pay.
One observation noted in the blog is the importance of deeper succession planning. Although it’s still early, looking forward, the blog says it’s possible that the gap between CEO and other proxy officers’ pay may narrow as companies recognize more fully that the CEO is part of a team, as opposed to disproportionately creating value on his/her own. Pay parity throughout the entire organization may elevate in importance as companies reevaluate the definition of “essential” within the workforce.
-Lynn Jokela, CompensationStandards.com May 14, 2020
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