CHAPTER 06 Executive Decisions: Compensation Trends In and Outside of Times of Crisis
COVID-19’s Immediate Impact: Director and Senior Executive Salary Reductions and Freezes As the COVID-19 pandemic spread to North America, resulting in widespread lockdowns and significant economic disruption, many issuers in Canada and the United States faced little choice but to suspend dividends, lay off staff and implement wage reductions. A significant number of these issuers determined that it was important that management show solidarity with both shareholders and employees. Issuers that found themselves appealing for government support also faced market and political pressure for their senior executives to share the economic pain associated with the health crisis. As a result, between late March and early May 2020, many issuers announced reductions to, or deferrals of, executive and/or director pay.
Similarly, in the United States, data released by The Conference Board, Inc., in collaboration with Semler Brossy and ESGAUGE Analytics, indicate that, as of August 14, 2020, only 636 issuers (representing just 21.2%) on the Russell 3000 index had announced executive pay reductions or deferrals. 104 A QUESTION OF DEGREE: THE VARIED MAGNITUDE OF PAY REDUCTIONS Among those Russell 3000 index issuers that implemented reductions in executive compensation in 2020, the extent of the reductions varied widely, both among issuers and internally between the CEO and other executive officers. Studies show that the majority of CEOs among those issuers that reduced compensation temporarily cut their salaries between 20% and 50% (see Figure 6-2). 105 The time frames for those reductions ranged from an indefinite period to a fixed period with the potential for extension. Some CEOs, particularly in industries that were significantly adversely affected by COVID-19, such as airlines and hospitality, forwent their salaries entirely. Among those Russell 3000 index issuers that implemented reductions in executive compensation in 2020, the extent of the reductions varied widely, both among issuers and internally between the CEO and other executive officers.
MANY REDUCTIONS DO NOT A TREND MAKE
It has been said that the plural of “anecdote” is not “data.” Despite the stream of announcements of executive pay cuts, which might have led the average news consumer to conclude that executive pay reductions in the face of COVID-19 were the norm, the data suggest that these measures were not particularly widespread among North American issuers. As of June 20, 2020, studies found that only 51 (3.1%) of over 1,600 issuers listed on the Toronto Stock Exchange (TSX) had publicly announced changes to their pay practices in response to COVID-19 (see Figure 6-1), 102 with only 18% of those being constituents of the TSX 60. 103
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