As the historical surge in layoffs and furloughs continues in response to the COVID-19 driven economic downturn, pressure has been building for corporate executives to share in the burden of financial austerity. Several high profile companies have recently announced that they will materially reduce or completely forego executive base salaries. But how widespread has this managerial sacrifice been across corporate America? To get a clearer picture of the situation, we leveraged our technology to extract any mentions in corporate filings indicating that CEOs will reduce or forego compensation. The sample includes all press releases, earnings call transcripts, and SEC filings published in March and April for Russell 3000 companies. Here are the big takeaways:
1. A little over 10% of index constituents have specifically announced temporary or indefinite base salary reductions for CEOs. These CEOs, at the median, have forgone half their salary. Mentions of non-salary compensation reductions as a response to the market downturn were negligible.
2. Smaller companies have been more likely to implement CEO salary cuts, but the magnitude of these cuts has been shallower than at larger peers. This might reflect (1) relatively more acute financial stress among smaller companies, necessitating broader financial sacrifice; and (2) compensation packages at larger companies consisting of a smaller proportion of base salaries, making this component potentially easier for CEOs to give up.
3. Companies in sectors most exposed to the COVID-19 response have been the most likely to shed CEO salary. This includes the beleaguered Arts & Entertainment, Accommodation & Food Services, and Retail Trade sectors, with around 40% of firms announcing cuts. However, the magnitude of median pay reductions across sectors exhibited no clear pattern.
Interestingly, some CEOs received stock units in exchange for salary reductions, standing to earn windfalls when the market recovers. Others volunteered to defer a portion of their salaries in lieu of unconditional cuts. This sort of fine print, combined with the fact that very few companies have yet to adjust potentially more lucrative components of executive compensation (bonuses and option grants), suggests that we could see further political and shareholder pressure for executives to incur deeper compensation adjustments, depending on the duration and severity of the recession.
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Note: We excluded Construction and Utility sectors in the last chart given the unusually low sample sizes of CEOs taking pay cuts