The COVID-19 pandemic has altered the way the world operates. As several biotech companies race to develop an effective and safe vaccine for the virus, citizens and businesses alike are slowly but surely adapting to the “new normal.” While the economy gradually rebounds from the initial shutdown as a result of the pandemic, it remains to be seen how executive pay packages could look come post-pandemic.
This is largely due to the fact that among the many actions companies took to conserve cash since the pandemic began in March 2020 was the reduction or elimination of executive pay. This segment highlights findings from a joint study by Equilar and Stanford University that examines the many actions Russell 3000 companies took in response to COVID-19 during the first half of 2020.
Perhaps to no surprise, the most common action taken by the Russell 3000 was directed toward salaries, as this was an immediate source of cash. In total, 449 companies elected to either reduce, exchange for equity or defer CEO salaries. The next most common action was to reduce, exchange or defer director fees, with 316 electing this approach. Actions to bonuses and LTIPs were the least common through the first half of 2020.
For those companies that reduced CEO salary, the most prevalent percentage cut was between 20–29%, with 118 companies making this change. Additionally, 86 companies elected to eliminate CEO salary entirely (100% reduction). Median CEO salary decreased by $420,000 among companies that took action.
Due to shelter-in-place orders and social distancing protocols, the retail sector was among those most affected. Consequently, the retail sector had the largest prevalence of companies adjusting CEO and director pay at 45%. Manufacturing was the next highest with 36% of companies adjusting pay, followed by transportation at 28%.
The COVID-19 pandemic continues to pose a threat to Corporate America. Companies will continue to adapt to the current landscape, and while executive pay will likely be re-examined in 2021, CEOs and board directors will likely take further pay cuts if economic conditions decline over the next few months.