(AP) — As COVID-19
wreaked havoc on the world last year, CEOs
' large pay packages appeared to be under threat along with everything else.
Fortunately for those CEOs, many had boards of directors willing to view the pandemic
as an extraordinary event beyond their control, and boards across the country made changes to the intricate formulas that determine their CEOs' pay — as well as other moves — that helped make up for losses caused by the crisis.
As a result, CEO pay
packages rose again last year for the biggest companies, despite the pandemic sending the economy
into its worst quarter on record and slashing corporate profits around the world. According to data analyzed by Equilar for The Associated Press
, the median pay package for a CEO at an S&P 500 company will hit $12.7 million in 2020, which means half of the CEOs in the survey made more than that.
Extended sick-pay benefits and expenses for hand sanitizer and other safety equipment totaling $60 million dragged on two key measurements that help set his performance pay at Advance Auto Parts. However, because the board's compensation committee saw these costs as extraordinary and unanticipated, he received a pay increase for 2020.
Carnival gave stock grants to executives, in part to encourage them to stay with the company as the pandemic forced it to halt sailings and furlough workers. The grants were valued at $5.2 million for CEO Arnold Donald's 2020 compensation, though their full value will ultimately depend on how the company performs on carbon reductions and other measures in the coming years.
Meanwhile, regular workers saw gains, but not at the same rate as their bosses, and millions were laid off.
Wages and benefits for all workers outside the government rose only 2.6% last year, according to U.S. government data that exclude the effect of workers shifting between industries. This is an important distinction because lower-wage earners lost their jobs
more than professionals who could work from home
as the economy shut down.
“This should have been a year of shared sacrifice,” said Sarah Anderson, director of the global economy project at the left-leaning Institute for Policy Studies, “but it became a year of shielding CEOs from risk while frontline employees paid the price.”
The AP's compensation study included pay data for CEOs at S&P 500 companies who have served at least two full fiscal years at their companies and filed proxy statements between Jan. 1 and April
30. It did not include some highly paid CEOs who do not meet that criteria.
Last year's 5% increase in median CEO pay masks
how much variation there was beneath the surface. Some companies thrived as a direct result of the pandemic. Lowe's sales soared amid a nationwide nesting frenzy, and CEO Marvin Ellison's pay nearly doubled after its stock more than doubled the S&P 500's total return during its fiscal year.
Meanwhile, other CEOs saw their pay cut. At Duke Energy
, the board reduced CEO Lynn Good's short-term performance pay after earnings per share fell short of the company's initial target, owing in part to industrial customers using less power during the pandemic. Good's pay fell 2.6% to $14.3 million, despite earnings ending up within the range Duke forecast for Wall Street
earlier in the year.
Overall, 61% of the 342 CEOs polled in this year's survey received a pay raise last year, which is nearly the same as the 62% in 2019, when the economy and corporate profits were both growing.
This is also despite several CEOs taking high-profile salary cuts during the year as an act of shared sacrifice and to save a little money
for the company; roughly one in every five CEOs in this year's survey had a lower salary for 2020 than the previous year.
However, salary is frequently only a minor component of a CEO's total compensation, which is derived from notoriously complex formulas. Each year, companies fill pages of their proxy statements with charts and footnotes showing how the majority of their CEO's pay rises and falls with corporate performance. It's in this nuanced area that many companies adjusted levers that ultimately helped CEOs get more in c
A Shocking Alteration
Boards usually stick to the CEO pay formulas they set early in the year, but the global economy's sudden crash forced a rethinking, which was complicated by the fact that they had few historical precedents to guide them.
“Many committees asked us, ‘Does this compare to the financial crisis? What did people
do then?’” said Melissa Burek, a partner at Compensation Advisory Partners, a board consulting firm.
However, the pandemic was very different from the 2008 economic collapse, owing to the fact that this crisis was caused by a virus, rather than by CEOs taking on too much debt and risk. As boards adjusted targets to make CEO incentive pay easier to obtain, many also limited the size of the possible payouts.
“I think there is a recognition, when unemployment
is so high, of: Do we feel good about paying our CEO at this level?” said Kelly Malafis, also a partner at Compensation Advisory Partners, of board of director thinking. “The answer is: ‘We’re doing this for performance. When performance is bad, we don’t pay. When performance is good, we pay.”
Carnival, for example, says that much of its CEO's compensation is tied to the company's financial and operational performance. The company said Donald received no cash bonus
tied to 2020, and to conserve cash during the pandemic, the company gave him grants of restricted stock instead of salary from April to June, then cut Donald's salary in half from July to November.
The Gates Are Rustling
in Washington are advocating for rule changes to reduce the disparity between CEOs and workers.
Companies are required to show how much more their CEO earns than the average worker, and the median in this year's survey was 172 times, up from 167 times for those same CEOs last year, implying that employees must work their entire lives to earn what their CEO earns in a year.
One bill introduced in Congress
would raise taxes on corporations where the CEO earns 50 times or more than the average worker.
Shareholders in some companies are protesting board-approved compensation packages.
Mexican Grill’s annual shareholder meeting earlier this month, only 51% of voting
shares approved of its executives’ pay packages, compared to 95% a year earlier, while such “Say-on-pay” votes
routinely receive more than 90% approval across the S&P 500.
Chipotle's board of directors excluded three months of sales results from the worst of the pandemic, as well as several other items, when calculating pay for its CEO, Brian Niccol, allowing him to receive more compensation than he would have received otherwise.
Chipotle described the move as a one-time change that does not reflect Niccol's ongoing compensation package. Chipotle was one of the pandemic's relative winners, with revenue increasing 7.1% and stock rising 65.7%.
While nonbinding, “say-on-pay” votes are gaining traction on Wall Street. According to Morgan Stanley, stocks of companies that failed their votes lagged significantly behind the S&P 500 in the following year between 2017 and 2019.
The trend did not hold last year, when the pandemic may have shaken everything, but Morgan Stanley strategists still see failed “Say-on-pay” votes as a red flag that a stock may struggle.
And if there's one thing Wall Street investors care about, it's how well they're paid.