What Is Causing The Pushback Against Rising Executive Pay?

Posted: March 22, 2022

Many authorities on the subject say that the ideal ratio of CEO compensation to worker compensation is approximately 20-1. In 2020, this metric sat at 351-1. Arguably, pay ratios are currently out of equilibrium. Under normal circumstances, employees and shareholders might be willing to overlook this drastic difference. However, in the midst of a global pandemic and record year-over-year inflation, shareholders are finally starting to speak out against sizable executive compensation packages and lopsided executive pay ratios. Shareholders pushing back Recently, a record 16 companies had the pay of their CEOs rejected by more than 50% of shareholders. This is a drastic increase from just 7 companies in 2019. This changing sentiment is most likely the result of many companies’ decisions over the past few years. Let’s take a look at what those were. Questionable practices and metrics The COVID-19 pandemic was not friendly to anyone. For employees, it meant the threat of being furloughed or fired altogether. For executives, it meant watching their businesses get closed and revenues drop for months on end. Under COVID-19 restrictions, it was nearly impossible for executives to meet their yearly goals for growth, revenue, sales, etc. Instead of letting CEOs fall short of their goals, many management teams chose to simply change the goals. Instead of aiming for 10% revenue growth, now a revenue dip of 20% was still considered a win. In this way, top executives got to keep their bonuses. During arduous times like the COVID pandemic, people take solace in the fact that everyone is struggling together. However, when the goalposts are moved like this, suddenly the situation begins to resemble unfairness and imbalance to many people. Thousands of employees were being laid off without hesitation but there was still plenty of room in the budget to pay out millions in executive bonuses. Additionally, since the pandemic, many companies have instituted massive High pay doesn’t match the results The biggest argument for lofty executive compensation packages is that having a good CEO is crucial to a company’s success. There is definitely some truth to this. There are many CEOs that are truly top-notch and bring explosive value to their companies. This list includes Apple’s Tim Cook and (formerly) Disney’s Bob Iger. These men have great track records and have the soundest argument for their compensation packages with data to back them up. On the other hand, there are also executives with high pay that are not bringing the same type of quantifiable value to their companies. For example, Meta’s Mark Zuckerberg has been in front of Congress multiple times to defend the questionable legality of his company's activities. Meta’s stock is also down about 30% since 2021. Even so, Zuckerberg's pay package is quite robust. Norwegian Cruise Lines' Frank Del Rio presents a similar situation. Under Frank Del Rio, Norwegian posted a $4 billion loss in 2020. Despite loosening pandemic restrictions, NCL’s annual revenue fell another 50% and the company posted a $4.5 billion loss in 2021. Since 2020, the company’s stock price is down 70%. Despite this, Del Rio was paid $36.4 million in 2020 which was more than double his 2019 compensation of $12 million. It’s now two years after the start of the pandemic and, at some point, you have to wonder if there are any repercussions at all for poor CEO performance. 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.