Recent weeks have seen a sharp decline in the number of new companies disclosing reductions to executive salaries and board cash retainers. COVID-19 has impacted sectors in meaningfully different ways, with some companies continuing to reel from the rapid economic downturn while others have already experienced stock price recoveries. For those harder-hit organizations, we have seen companies grapple with balancing pay for performance with seeking to recognize overall company stewardship in a difficult environment.
Further, this past week, companies have taken the time to consider several potential actions in their pay programs:
To date we have seen over 480 companies reduce executive salaries and over 300 companies reduce director cash retainers since the onset of the COVID-19 pandemic, most commonly in severely affected industries (e.g., retail, REITs, travel, leisure, etc.). However, this week we have seen a decline in the number of new companies disclosing reductions. We do note that disclosure of such actions is often voluntary, so the figures being tracked may actually understate the prevalence of pandemic-related executive and director compensation reductions.
As the second fiscal quarter progresses, companies are taking time to discuss the treatment of existing annual bonus and long-term incentive cycles:
We continue to see executive salary reductions (now more than 400 companies) and director cash retainer cuts (more than 225 companies) most commonly in severely affected industries (e.g., retail, REITs, travel, leisure, etc.), although companies in less-affected sectors have also taken salary actions. We also have found strong linkage between companies that have reduced executive salaries and board cash retainers with companies that have announced broad-based employee actions such as furloughs, staff reductions, and broad-based salary reductions. Most of these companies have not indicated a definitive end date to the reductions, but rather intend on reevaluating salaries and retainer reductions when greater clarity and stability emerges in the financial outlook.
Further, this past week, companies have also taken the time to consider several potential actions in their pay programs in response to ongoing macroeconomic uncertainty:
– Delaying goal-setting until summer 2020 or when there is more clarity regarding financial outlook.
– Replacing PSUs with performance cash with a discount to reflect lower “currency” risk
– Replacing PSUs with RSUs, with grant values reduced to reflect lower risk of time-based equity.
– Reducing threshold payout opportunities to ensure downside protection, with some companies leaving maximum opportunities unchanged and others reducing maximum payouts to preserve the symmetry of the plan.
– Historical differences in prices used for director equity awards versus management equity grants during years of stock price volatility.
We continue to see executive salary reductions (more than 350 companies) and director cash retainer cuts (more than 175 companies) most prominently in severely affected industries (e.g., retail, REITs, travel, leisure, etc.), although companies in less-affected sectors have also taken salary actions, often to demonstrate empathy with affected communities, employees, and customers. Further, this past week, companies have taken time to contemplate and evaluate several actions in response to macroeconomic uncertainty: