Is this economy better or worse for executives?
As the quarantine has dragged on, many companies have closed or gone bankrupt. They either didn’t have the business model that could adapt to the times or they were already teetering on the brink. Have executive salaries been cut as well? A recent Harvard study shows that many executives are taking reductions in salary or other compensation.
The study of the Russell 3000 shows that 634 companies have adjusted the pay of their executives. Pay was down 6 percent compared to last year. The S&P Index includes 114 of these businesses.
Creative pay cuts for some executives
Some of these companies have gotten creative in how they have pursued these cutbacks. Often they don’t have the ability to actually cut their CEO’s base salaries. So, they have instead pushed their executives to accept deferred compensation. A favorite method is awarding Restricted Stock Units (RSUs) in lieu of cash.
Needless to say, smart executives are willing to agree to these measures to keep the business afloat. They are taking cutbacks in order to save the company. This is especially important when mass layoffs are occurring. There is no way to measure which executives have turned down these requests, since businesses are tight-lipped when it comes to their financial troubles.
The most affected industries
The need for cutbacks definitely varies greatly from industry to industry. The resort industry has seen large conglomerates on the brink of collapse. Many have converted the entire base salary of their executives into RSUs. Others impacted in a similar manner include the live entertainment industry, theme parks, and brick-and-mortar stores.
The Harvard Study discovered that some executives have taken 25 percent or even 50 percent pay cuts. For those who need to embark on an executive search, this would seem to signal that pay is dropping. This is true in some businesses, but the exact opposite is true in others.
Winners in today’s economy
Despite the massive amounts of money involved and the number of people laid off, the affected businesses remain the outliers. The overall compensation rate is still healthy and the complaint that CEOs are overpaid hasn’t changed much.
Both the Russell 3000 and S&P Index saw increases in the pay granted to their CEO and their Named-Executive Officers this year.
A study by CGLytics determined that the C-Suite is still earning more than is warranted by their shareholder returns. No doubt, this figure will keep shifting up as more companies struggle with the quarantine. Many executives will earn their pay, no matter what, due to ironclad contracts.
This has been called perpetual pay, and it must continue even if the company does feel the effects of the quarantine-related recession.
Some companies, such as Amazon, Walmart, Lowes and Home Depot, are making enormous profits due to the quarantine. Individuals who can’t go on vacation are spending their extra income to fix up their house. They are shopping online and picking up curbside. Needless to say, these companies have no incentive to curb executive pay despite the effects of the quarantine on the general public.
Story by Laura Bell