In the prior post, I discussed the new paper studying "the CEO compensation decisions of large publicly traded companies in the U.S. following the spread of COVID-19 to see how many elected to modify CEO pay and how many left it unchanged. " Batish, Amit and Gordon, Andrew and Larcker, David F. and Tayan, Brian and Watts, Edward and Yu, Courtney, Sharing the Pain: How Did Boards Adjust CEO Pay in Response to COVID-19? (September 1, 2020). Rock Center for Corporate Governance at Stanford University Closer Look Series: Topics, Issues and Controversies in Corporate Governance No. CGRP-86, Available at SSRN: https://ssrn.com/abstract=3682766.
To be sure, the study focused on companies listed in the Russell 3000 index, which includes--but is not limited to--the companies whose CEOs signed the Business Roundtable statement on corporate purpose of which I have written much. One finding jumped out at me:
Following COVID-19, fewer than 20 percent of public companies elected to make changes to their executive and director compensation programs.
Moreover, those who did make changes reduced CEO pay by only about 8 percent.
COVID-19 has adversely impacted corporate stakeholders in numerous and dramatic ways. As the authors note, cutting the CEO's salary would have sent a "signal to shareholders, employees, and stakeholders that corporate leadership intended to share their economic burden." If the Business Roundtable statement on corporate purpose accurately stated what corporations are really doing, presumably companies would have been eager to send such a signal. Granted, companies that cut CEO salaries were more likely to layoff employees, suggesting that such firms may have sought to send such a signal. On the other hand, companies that cut CEO salaries also "were among the hardest hit in terms of stock price performance." So one could also interpret the pay cuts as a signal to their shareholders. In either case, the key takeaway remains that over 80% of Russell 3000 companies made no changes to their CEO pay in response to a debilitating crisis, which does not speak well of their desire to benefit stakeholders.
