The Optics of Executive Pay in the Time of COVID -19

May 4, 2020

Article after article, newscast after newscast and investor call after investor call continue to highlight the fallout from the unprecedented COVID-19 global crisis. Unlike the children’s story, Henny Penny, more commonly known in the United States as Chicken Little, the sky really is falling as the pandemic takes its toll with shuttered businesses, furloughed employees, and “shelter in place requirements across 42 states. The real question is how are companies coping with the crisis? How are they aligning stakeholder interests with executive interests?

According to Farient Advisors’ partner, Marc Hodak, “the focus on stakeholders makes this crisis different than the 2002 dot com and 2008 financial crisis. Many companies, even if it’s just for the sake of optics, have taken the approach that we are all in this together.  Nowhere has this played out more than executive compensation with many companies going through the motions of reducing executive pay.”

In mid-March, Farient began tracking companies making adjustments to their pay programs in response to the economic fallout of the virus. On March 18th, Delta Airlines became the first S&P 500 company to announce a CEO executive pay reduction.  Over the next month, 104 other CEOs in the S&P 500 and S&P MidCap 400 indexes saw pay cuts, either voluntarily or by board action. Farient has reviewed 8-ks and proxies from this group of 900 companies to identify those that have made changes to compensation plans in response to the impact of the pandemic.

 How Pay Reductions Impact the Executive Team

As the economic impact of the coronavirus pandemic has spread across the economy, employees have been laid off, furloughed or taken pay reductions. As a show of solidarity, CEOs and other members of the executive team have taken pay reductions as well. In the course of our research, we have found that:

  • Fifty-four CEOs (10.8%) in the S&P 500 have had some reduction in pay
  • Fifty-one CEOs (12.8%) in the S&P MidCap 400 have taken a reduction in pay
  • With few exceptions, (Herman Miller (MLHR), Texas Roadhouse (TXRH) and Helen of Troy (HELE)), nearly all companies announcing changes have made cuts to salary and have not adjusted STI or LTI
  • Two CEOs (MGM (MGM) and PerkinElmer (PKI)) have taken their salaries in RSUs, vesting at the end of 2020, rather than in cash

Two months into the economic fallout of the pandemic, most companies have not disclosed the duration of their pay cuts. Companies that have made announcements have limited pay reductions to six months or less.

CEO Pay Cuts Have Not Been Equally Distributed by Sector

The economic impact and equity price damage has been unevenly distributed across sectors. Similarly, CEO pay reductions have not been equally distributed across industries. Airlines, hospitality, cruise lines, and retail have taken the biggest hits, both in share prices and employee reductions, while companies like Costco (COST), Kroger (KR), and Home Depot (HD) have benefited from being identified as “essential services.” Companies forced to furlough or layoff employees have been more likely to announce C-suite pay adjustments. Sectors such as Consumer Discretionary and Industrials have seen the most companies shed employees and cut executive pay, while sectors such as Financials and Utilities have not reported any CEO pay reductions to date.

CEO Pay Adjustments

In addition to cutting CEO pay, many companies are mandating 25-30 percent pay cuts for senior staff. At the end of March, for example, the Disney Company (DIS) announced pay cuts across the organization which included 30 percent for EVPs and above, 25 percent for SVPs and 20 percent for VPs. Fluor Corporation (FLR) announced 20 percent pay cuts for all executives at the VP level and above, while General Electric (GE) announced a 25 percent pay cut for VPs in mid-April.

In a World Gone Mad, Pay Cuts Beyond the C-Suite

CEOs and senior executives aren’t the only ones having their compensation reduced as the pandemic rages across the economy. In this new normal, Boards of Directors are seeing reduced cash retainers. These reductions range from 10 percent to 100 percent as boards of directors “share the pain” with their executives and employees.  Directors have eliminated their cash retainers at American Airlines (AAL), Boeing (BA), L Brands (LB), and Macy’s (M), while directors at Best Buy (BBY) and Boston Scientific (BSX) have reduced their cash compensation by 50%.

Conclusion: Dealing With Fallout From the Pandemic


Nothing in recent memory has impacted stakeholders more than COVID-19. The most vulnerable in our communities have taken the hardest hits, while our healthcare system proved woefully inadequate to address a crisis of this magnitude. To that end, executive sacrifice is a signaling device more than an action materially impacting the finances of the individual or the company.

In our research, the majority of salary adjustments impacted only base pay. We found very few executives who gave up equity grants, generally the majority of their compensation. We expect that any criticisms around executive pay will be center stage in 2021 as annual bonuses and grants are disclosed and our economy is on the path to recovery.

Companies should be thinking about the optics of their overall executive compensation plans in the context of COVID-19 and how 2021 disclosures will be received by investors. We encourage compensation committees to be proactive and thoughtful now to avoid future pay windfalls later as equity vests and share prices recover. The investor community will not look kindly on executives and boards of directors whose actions during the crisis dilute the linkage between executive and stakeholder interests. 

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