Discretionary Adjustments: How CEO Pay Was Bolstered By Bonuses In Spite of a Global Pandemic

Posted: May 4, 2021

The subject of big ticket executive compensation packages has been a hot issue in the United States for quite some time. Since 1989, the ratio of CEO-pay-to-worker-pay has slowly risen from approximately 60-1 to about 300-1 in 2018. This metric means that the average CEO now makes about 300 times what the average worker makes. Many people were interested to see whether or not this trend would continue during a global pandemic that ravaged both the United States and the global economy. Now that we’ve pushed through the beginning of 2021, the observed results show that CEO pay for America’s 300 largest companies surged about 15% for the year 2020. This article will examine how CEO pay was bolstered by bonuses in spite of a global pandemic. Despite falling profits and layoffs, bonuses didn’t stop 2020 was one of the most difficult business years in recent history. Even companies that were deemed “essential” and were permitted to remain open were still forced to deal with interrupted supply lines, social distancing rules, and managing the safety of their employees. All of these factors led to an incredibly tricky business landscape that required intense leadership. This begs the question: do top executives deserve more or less money during difficult economic times such as we saw during the heat of the COVID-19 pandemic? The board of directors for Yum Brands certainly thought that the answer was more. They recently announced that, even though CEO David Gibbs missed a major milestone required to earn his full pay, they were just going to give him his bonus anyway. Instead of receiving the $0 he should have gotten for not reaching his target, he was awarded $9 million. Foot Locker was another company who stretched their own rules in order to award executive bonuses. First, they waited until mid-June (well into the pandemic) to determine how to set executive incentives, which ultimately were used to financially assist their CEO quite substantially. Instead of shooting for the typical year over year revenue increase, they figured that a loss of only 30% during a pandemic was the best that could be expected for their business in 2020, and thus tied CEO compensation incentives to minimizing loss rather than maximizing profit. They also used creative accounting principles to minimize the losses passed on to their shareholders. Keep in mind that Foot Locker was deemed “non essential” and furloughed almost all of their employees during this time. Not all companies gave out bonuses for 2020 though. Marriott and Hilton, two businesses that took a loss in profit in 2020, are good examples of companies that decided to cut executive pay. Should extenuating circumstances really affect Executive Pay? Most of the companies that extended executive bonuses stated that 2020 was an incredibly tough year and that CEOs shouldn’t be punished for things that were outside of their control. While this may be true, the same could also be said for the millions of workers who fired or furloughed due to things outside of their control. On the surface this may seem like a double standard, however, with the title of CEO comes increased responsibility and pressure, and these realities have been and will continue to be used to justify high levels of Executive Compensation regardless of the global business environment. To learn more about maximizing executive compensation, visit our Contact Page, or contact us directly by email at fglassner@veritasecc.com or by phone at 415-618-6060.