A new study calls headline grabbing CEO pay cuts “window dressing” designed to make it look like corporate executives share the pain as the coronavirus pandemic throws millions of people out of work.
The report “Will the Dust Settle?" from corporate governance and analytics firm CGLytics looks at companies on the Russell 3000 Index as they manage through the COVID-19 crisis.
It found 762 companies listed on the Russell 3000 “have issued some type of actions to executive compensation due to COVID-19.” But, the report points out, “The average amount of base salary reduction for the CEO only makes up about 7.8% of their total granted compensation.”
Aniel Mahabier, founder of CGLytics, said the CEO pandemic pay cuts fail to tell the whole story. “We are seeing companies promote executive pay cuts in reaction to the pandemic, but in most instances, while this shows sympathy and leadership, this is just base salary and doesn’t provide a true reflection of the total remuneration package.”
The Associated Press annual survey of CEO compensation found the typical pay package for CEOs at the largest U.S. companies topped $12.3 million just before the pandemic hit.
The AP survey also disclosed median executive compensation grew 4.1% in 2019 while only growing 3.2% for the typical worker at those large companies.
Lawmakers looking at CEO pay
“When we see a headline that says CEO cuts pay by 10%, we think of that as their income cut by 10%. It's really not,” said Congresswoman Katie Porter (D-Calif.). She said corporate boards of directors need to do a better job determining appropriate executive compensation.
During a House Oversight Committee hearing last year, Porter grilled a pharmaceutical CEO about drug prices and his multimillion dollar annual pay package. “And the only answer he could come up with was, well, someone else got that much money,” she recalled.
Porter said “trivial pay cuts” as found in the report are, “consistent with the fact that the pandemic, both its actual human toll and lost lives, as well as the economic hardships are really falling on the lowest paid people.”
Sen. Sherrod Brown (D-Ohio) said the report underscores why American workers need to be at the center of the economic recovery as Congress debates a $1.9 trillion COVID-19 relief package.
“Company executives cut their ‘base salaries’ for show while raking in millions in compensation through bonuses and other means,” Brown told Yahoo Finance. “Democrats are focused on helping working Ohioans in this relief package — and we’re going to deliver the real results that millions of Americans voted for and deserve.”
CGLytics’ Mahabier said CEO pay cuts portray a desire by companies to address “pay inequality” but the report shows, “a more holistic approach to modern governance practices is needed across the board.”
Mahabier suggests CEOs and executives who wish to truly help their companies and support employees should consider bigger sacrifices, “such as returning part of their compensation packages or taking bonus cuts and reductions in other short-term cash incentives.” That may have more impact, he said.
This article originally appeared on Yahoo! Finance.
