Even CEOs are starting to get squeezed by the economic realities of this pandemic.
But compared to their employees, a growing number of critics still say it’s not enough.
So far, top executives of many major corporations — including some at the very epicenter of the crisis — have mostly held on to their outsize pay packages after giving up some of their salaries. And even as rank-and-file jobs vanish, some still have a distant shot at collecting bonuses for 2020, albeit smaller than last year’s.
How things play out will depend on the economy, financial markets and ultimately the coronavirus itself. But as the pain grows for ordinary workers, executive pay — a divisive issue in an age of extraordinary inequality — has come to the fore once again.
Consider, for example, Tenet Healthcare, which furloughed thousands in the wake of the coronavirus. Chief Executive Officer Ronald Rittenmeyer vowed to give up three months’ pay — roughly $390 000 (R7.2 million) — to a fund set up years ago to help employees struggling to make ends meet. In a letter to investors in April, he wrote the donation was made "in honour" of the hospital chain’s 113 000 doctors, nurses and others, many of whom work on the front lines in the fight against Covid-19.
Yet even after the pay cut, Rittenmeyer will still rake in over a million dollars (R18 million) in salary. That’s not counting at least a $875 000 (R16 million) bonus, stock awards worth $11.3 million (R209 million) through 2022 and a contract that entitles him to millions of dollars more in the future. Total compensation figures have yet to be finalised for the current year, but the $390 000 that Rittenmeyer is forgoing would only amount to 2% of what he received last year.
What’s more, Tenet still pays Rittenmeyer’s predecessor, who left three years ago, roughly $245 000 (R4.5 million) each month as part of his severance package.
It’s little wonder one of the largest US unions criticised Tenet’s executive pay and said Rittenmeyer’s donation amounted to little more than "a gesture", adding that the payouts were "particularly appropriate" when resources are sorely needed to support the company's frontline workers. Shareholders were asked to vote against the pay package at the company's annual meeting on 28 May.
A Tenet spokesman said executive-pay decisions were made before the outbreak and payouts are tied to long-term goals. He added the furloughs were carried out to focus resources on Covid-19 care and some employees are back on the job.
Rittenmeyer, who declined to be interviewed, isn’t the only CEO facing scrutiny. Grocery store chain Kroger, under fire from employees and unions over its plan to scrap hourly hazard pay this weekend – which amounts to $2 or R37 an hour – disclosed that CEO Rodney McMullen was awarded $21.1 million (R390 million) in compensation for 2019. A typical worker got less than $27 000 in pay and benefits combined.
A Kroger spokeswoman said the company’s average wage is $15 an hour and that it offers a range of safety precautions, from testing to emergency leave.
As growing numbers face unemployment, tough questions are being asked about executive pay.
Several major corporations began announcing CEO pay reductions in March, and dozens of companies across industries globally have followed.
On one hand, the moves are a conscious, if symbolic, display of solidarity and shared sacrifice, an effort by the bosses not to appear tone deaf. But on the other, they lay bare the gaping economic disparities between those at the very top of the corporate ladder and everyone else.
"If you’re going to ask your staff to give up salary, so should you," said Charles Elson, director of the University of Delaware’s centre for corporate governance. "The question is, how will the rest of the pay package play out?"
CEOs at S&P 500 companies receive in salary, on average, roughly 20 times the median household income. But that sum only accounts for 10% of their total compensation. The rest comes in bonuses and stock-based incentives typically tied to measures like equity returns or profits. Those payouts are adjusted based on how goals are met.
For many executives in the hardest-hit industries, that means making do with perhaps $1 million instead of $10 million. But others still have a shot at hefty payouts, regardless of cuts to base pay, if stocks recover.
In the past decade, public-company executives have reaped billions in gains from stock-based awards, some of which were granted at the depths of the Great Recession, while millions of people have struggled for years to regain their footing.
"There’s just the general view that we need to pay attention to all stakeholders," said Robin Ferracone, CEO of Farient Advisors, which gives boards advice on executive pay. "It can’t just be that some are getting richer and the rest are taking it on the chin."
It’s part of a longer-term trend. Chief executives at the largest US companies saw their pay skyrocket 940% between 1978 and 2018, a study showed last year, largely helped by stock gains. Worker wages, meanwhile, increased by just 12%.
In some instances, hefty stock awards have arguably made sharing the pain an exercise in virtue signalling. In April, Greg Case, CEO of global insurance and consulting firm Aon, said he would give up 50% of his salary for the rest of the year as part of broader pay cuts. Roughly 70% of Aon’s workforce will see their salaries reduced by a fifth.
However, Aon still will pay about $100 million in dividends to shareholders on May 15. Like many other CEOs, Case has amassed a sizable ownership stake since he started in 2005, roughly 1.2 million shares. His cut of the quarterly payout will more than make up his lost salary.
Other employees who hold shares will benefit, too. But unlike Case, few also have tens of millions of dollars in unvested stock awards outstanding.
Aon declined to comment beyond Case’s open letter to employees. In it, Case wrote "paying a regular dividend is consistent with maintaining an investment grade rating and fundamental to accessing the capital markets."
The pandemic has also brought into stark relief the lucrative golden parachutes given to corporate executives. In March, MGM Resorts International furloughed tens of thousands of workers and began layoffs. Days later, it gave outgoing CEO Jim Murren, who left to head Nevada’s coronavirus task force, a $32 million (R594m) exit package. The payout sidestepped the terms of his original contract, which entitled him to nothing if he left voluntarily.
MGM didn’t directly address the exit package but said at the time that the board sped up the transition, announced the prior month, because it "believes continued steady, skilled leadership is needed in this time of great upheaval and uncertainty."
Whatever the case, companies must weigh past promises against public perception, says Aalap Shah, a partner at Pearl Meyer, an executive-pay consulting firm.
"If you don’t react in a way of camaraderie," he said, "that’s going to be very telling about the kind of company you are."
- With assistance from Reade Pickert.