Week of 6 April 2020
A growing number of companies cut executive pay (over 70 CEOs in the US, close to 40 in the UK); investors urge companies to ‘share the pain’, with a growing focus on those laying off staff as well as sectors beyond airlines (including finance, retail, hospitality and manufacturing)
Current estimates are that executives at over 70 US companies and close to 40 UK companies are taking a full or partial salary cut to support their companies’ cash flow and to signal solidarity with workers that are being let go or furloughed. The number increases every week. The Financial Times (FT) reports that the “rationale for taking a cut increases in proportion to the pain suffered by the workforce or the company’s dependence on state support”.
A growing number of investors are calling for executive pay cuts. Schroders, the UK’s second-largest listed asset manager (£500bn AUM), asked British companies to put employees, customers and suppliers first, and urged the chief executives of businesses struggling with cash flow to “share the pain” and take a pay cut. Hermes EOS places particular focus on companies making lay-offs or cutting staff salaries.
Commentators note that this is the direction of travel. Atta Tarki, Paul Levy, and Jeff Weiss state in the Harvard Business Review that executives that enact cutbacks should “lead by example and do cut backs that impact your own day-to-day as well.” Andrew Hill from the FT predicts that “[w]hen the crisis is over, remuneration will be a lightning rod for public and political discontent”.
The pay cuts started in the airline sectors – with all CEOs from major airlines taking pay cuts – and are now taking place in other sectors, including hospitality and entertainment, manufacturing, retail and finance:
- In hospitality and entertainment, Wyndham Hotels & Resorts’ CEO Geoff Ballotti is forgoing his entire base compensation “until such time as the Compensation Committee determines otherwise in light of the COVID-19 pandemic”, Hyatt CEO Mark Hoplamazian, and board chairman Tom Pritzker are forgoing their salaries through May, and Disney’s CEO Bob Chapek is taking a 50% pay cut, with chairman Bob Iger forgoing his entire salary “until things get better”.
- In manufacturing, Fiat Chrysler CEO Mike Manley is taking a 50% pay cut for three months “to avoid job cuts in the second quarter”, and Chairman John Elkann is taking a 100% pay cut until the end of the year. GE’s CEO Lawrence Culp is taking a 100% pay cut until the end of the year.
- In retail, Columbia Sportswear’s CEO and president Tim Boyle is reducing his salary to $10,000, Gap’s leadership team and Board of Directors will reduce their pay, and Macy’s CEO and Chairman Jeff Gennette will forgo pay from April until the crisis ends.
Although pay cuts have focused primarily on executives’ base salary, recent examples from the finance sector relate to forgoing cash bonuses as well. This is relevant since base salary is about 10% of the executive’s compensation (in the US), with the remaining compensation coming from other types of compensation, such as stock awards and option awards. (To illustrate this, Ed Bastian Delta’s CEO has a base salary of $891,667 which is 6% of his $14.9 million total compensation package).
- Amundi’s CEO Yves Perrier has become the first asset management executive to donate half of his €2m bonus for 2019 to a COVID-19 solidarity fund. This fund was set up by French bank Crédit Agricole, Amundi’s largest shareholder, and the bank’s CEO, Philippe Brassac, and his deputy, Xavier Musca, are doing the same.
- HSBC’s CEO Noel Quinn is waiving his cash bonus of £1.4m and donating a quarter of his £640,000 salary to charities supporting healthcare workers and vulnerable people, while HSBC chairman Mark Tucker is donating his entire 2020 cash bonus of £1.5m. Executives at Standard Chartered and Lloyds are also waiving cash bonuses and making donations.