S&P Global – Why voluntary CEO pay cuts, while largely symbolic, matter in ESG context

By Esther Whieldon

CEOs and management teams at dozens of companies around the world are taking voluntary pay cuts as their companies lay off workers to cope with the revenue hit from the coronavirus pandemic. Experts say cutting executive pay, while largely a symbolic gesture, could help companies manage reputational damage and enhance their ability to attract and retain workers in the long term.

Executive pay cuts are more a signal to the public and employees than a cost saving move to prevent worker layoffs, said Robin Ferracone, CEO of Farient Advisors LLC, a corporate governance and executive compensation consultancy. She noted that a CEO’s salary often accounts for only 10% to 15% of his or her direct compensation with the rest made up of an annual bonus and stock-based long-term incentives.

“It’s not as though one person’s salary is going to achieve a lot here,” Ferracone said. But the gesture shows those companies are taking more of a “stakeholder” viewpoint like the one expressed by Business Roundtable members, she added.

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