NEW YORK (AP) – As COVID-19 ravaged the world last year, the big salaries of CEOs appeared to be as threatened as anything else.
Fortunately for these CEOs, many had boards of directors prepared to view the pandemic as an extraordinary event beyond their control. Across the country, boards of directors have changed the complex formulas that determine the compensation of their CEOs – and other measures – that have helped offset losses created by the crisis.
As a result, salaries rose again last year for CEOs of the largest companies, even as the pandemic sent the economy to its worst quarter on record and squeezed corporate profits around the world. The median salary of a CEO of an S&P 500 company reached $ 12.7 million in 2020, according to data analyzed by Equilar for the Associated Press. This means that half of the CEOs in the survey did more and the other half less. That’s 5% more than the median salary for this same group of CEOs in 2019 and an acceleration from the 4.1% increase in last year’s survey.
At Advance Auto Parts, CEO Tom Greco’s salary for 2020 was about to take a hit amid a mountain of pandemic-related costs. Extended sick pay and spending on hand sanitizer and other safety gear totaling $ 60 million have dragged on two key metrics that help establish its pay-for-performance. But because the board’s compensation committee viewed these costs as extraordinary and unforeseen, it excluded them from its calculations. This helped Greco’s total compensation rise 4.7% last year to $ 8.1 million.
At Carnival, the cruise line granted shares to executives, in part to encourage its executives to stay with the company as the pandemic forced it to halt departures and time off. For CEO Arnold Donald’s 2020 compensation, these grants were valued at $ 5.2 million, although their total value will ultimately depend on the company’s performance in reducing carbon emissions and others. measures in the years to come. This helped Donald receive total compensation valued at $ 13.3 million for the year, up 19% from the previous year, even as Carnival fell to a loss of $ 10.2 billion. for exercise.
Meanwhile, regular workers have also seen gains, but not at the same rate as their bosses. And millions more have lost their jobs.
The wages and benefits of all workers outside of government increased only 2.6% last year. This is according to US government data that ignores the effect of moving workers between different industries. This is an important distinction because more low-wage workers lost their jobs as the economy closed than professionals who could work from home.
“It should have been a year for shared sacrifice,” said Sarah Anderson, who heads the Global Economy Project at the Left Institute for Political Studies. “Instead, it became a year of protecting CEOs from risk, when frontline workers paid the price.”
The PA compensation study included compensation data for CEOs of S&P 500 companies who served at least two full fiscal years in their companies, who filed proxy statements between January 1 and April 30 . It doesn’t include some highly paid CEOs who don’t. t match these criteria. CEO compensation figures sometimes include stock and option awards that they may never receive, unless they meet certain performance targets.
Complexity and coronavirus
The 5% gain in median CEO compensation last year masks the change in underlying compensation. Some businesses have flourished as a direct result of the pandemic. Sales exploded for Lowe’s amid a large nesting across the country, and CEO Marvin Ellison’s salary nearly doubled after his stock more than doubled the S&P 500’s total return throughout its fiscal year.
Other CEOs, meanwhile, have seen their compensation drop. At Duke Energy, board cut short-term performance pay for CEO Lynn Good after earnings per share fell below initial target, in part because industrial customers used less energy during the pandemic. Good’s compensation fell 2.6% to $ 14.3 million, even as earnings fell within Duke’s range of forecasts for Wall Street at the start of the year. Duke did not adjust formulas to increase Good’s salary due to the pandemic.
Overall, 61% of the 342 CEOs in this year’s survey received a pay hike last year. This is almost exactly the same percentage as the 62% in 2019, when the economy and corporate profits were increasing.
This is also despite the fact that several CEOs suffered high-profile pay cuts during the year as an act of shared sacrifice and to save some money for the company. About one in five CEOs in this year’s survey had a lower salary for 2020 compared to the previous year.
But salary is often only a minor part of a CEO’s total compensation, which is derived from notoriously complex formulas. Every year, companies fill the pages of their proxy statements with charts and footnotes showing how the bulk of their CEO compensation goes up and down with company performance. It was here, in the nuanced zone, that many companies adjusted the levers that ultimately helped CEOs get more pay.
A sudden change
Boards typically stick to formulas set for CEO compensation early in each year, but the sudden crash in the global economy has forced a reconsideration. What made it even murkier was that they had few historical guides on how to do this.
“Many committees have asked us this question: does this compare to the financial crisis? What did people do then? said Melissa Burek, partner at Compensation Advisory Partners, a consulting firm that works with boards of directors.
But the pandemic was very different from the economic collapse of 2008, mainly because that crisis was caused by a virus, rather than CEOs who were too much in debt and too risky. As boards of directors adjusted targets to make incentive compensation for CEOs less difficult to obtain, many also limited the amount of payouts possible.
“I think there is a recognition, when unemployment is so high, of: Are we happy to pay our CEOs at this level?” said Kelly Malafis, also a partner at Compensation Advisory Partners, of board thinking. “The answer is, ‘We do this for performance. When performance isn’t good, we don’t pay. When performance is good, we pay. “
At Carnival, for example, the company says a large portion of its CEO compensation is tied to the company’s financial and operational performance. The company said Donald did not receive any cash bonus related to 2020. And to preserve cash in the pandemic, the company gave him restricted stock grants instead of a salary from April to June. Then from July to November, he cut Donald’s salary in half.
Knocking at the doors
Progressives in Washington are pushing for rules to be changed to narrow the gap between CEOs and workers.
Companies need to show how much their CEOs earn more than their typical worker, and this year’s survey median was 172 times. That’s an increase from 167 times for those same CEOs last year, and it means employees have to work their entire lives to do what their CEOs do in just one year.
A bill in Congress proposes to raise taxes on companies where the CEO earns 50 times or more than the median worker in the company.
In some companies, shareholders are pushing back compensation plans approved by the board.
At Chipotle Mexican Grill’s annual shareholder meeting earlier this month, just 51% of voting shares gave its executive compensation a boost, up from 95% a year earlier. In the S&P 500, these “Say-on-Pay” votes consistently get over 90% approval.
Chipotle’s board ruled out three months of worst-of-the-pandemic sales results, along with several other items, while calculating compensation for its CEO, Brian Niccol. This allowed him to get more compensation than he otherwise would have.
Chipotle called the move a one-time change that does not reflect Niccol’s ongoing compensation plan. Chipotle has been one of the relative winners in the pandemic, with revenue up 7.1% and its stock up 65.7%.
Although they are not binding, “Say-on-Pay” votes are gaining more and more attention on Wall Street. Between 2017 and 2019, stocks of companies that failed their votes were significantly behind the S&P 500 over the next 12 months, according to Morgan Stanley.
The trend did not continue last year, when the pandemic may have disrupted everything, but Morgan Stanley strategists say they still see the failure of ‘Say-on-Pay’ votes as a signal alarm that an action may have difficulties.
And if there’s something that interests Wall Street investors, it’s how well they get paid.
Calling all super HuffPost fans!
Sign up to become a Founding Member and help shape the next chapter of HuffPost