More companies cut pay for leaders amid shareholder pressure
  • The number of top employers in the US that have cut executive pay has more than quadrupled in the last month.
  • Impact investors and shareholder pressure are driving the trend, with companies recognizing the need to demonstrate a shared sacrifice as many low-wage workers suffer in the declining economy.
  • Pay cuts and the controversy around large restaurant chains that accepted emergency loans designed to help small businesses are demonstrating the need for corporate leaders to be transparent or risk facing backlash.

Large corporations are asking their executives to cut their salaries or bonuses as a way to show shared sacrifice as the number of laid-off and furloughed employees grows in the wake of the COVID-19 pandemic.

The number of top 100 employers in the United States that have instituted executive pay cuts jumped more than four-fold from 6% on March 24 to 25% last week, according to JUST Capital, which advocates for companies to be a force for good in the economy. Analysts expect that number to grow even higher.

“Executive pay cut is a very clear signal that CEOs and the board are sharing in the burden,” Alison Omens, chief strategy officer for JUST Capital, told Karma. “There is pressure and scrutiny right now with what choices companies are taking.”

Two main drivers appear to be behind the trend, according to firms tracking how companies are adapting policies amid the crisis. 

Companies realize the need to demonstrate that CEOs, boards and top leaders are sharing in the sacrifice as lower-wage workers take a hit amid a deepening economic crisis. Also, as more companies take actions that adhere to impact investing principles, such as cutting executive pay, those who balk at such moves face growing pressure from stakeholders — including workers, customers and investors — to follow suit. 

The majority of pay adjustments amid the crisis are in the form of reductions to salaries or annual bonuses, Amit Batish, manager of content and communication for Equilar, told Karma.

“These types of cuts allow for immediate cash to be on hand, whereas cuts in equity, for example, are more long term,” Batish said.

At the same time, such cuts are a small sacrifice for most CEOs.

“Most CEOs make their money in the form of equity, so taking a salary or bonus pay cut is a drop in the bucket for them,” he noted.

Equilar has been tracking executive pay adjustments during the pandemic, and Batish said he expects more companies to cut executive pay in the coming weeks.

With economic uncertainty growing as most states expect to continue lockdowns to mitigate the pandemic through the month of May, executive pay is just one way corporate leaders are demonstrating transparency and solidarity with workers. Some have also revised paid sick leave policies to help workers affected by COVID-19, offered financial assistance to employees and increased community services.

These efforts show that corporate leaders are aware of the optics around their actions at a sensitive time, even as others have fumbled. Restaurant chains such as Ruth’s Chris Steak House and Shake Shack faced a public backlash for accepting funds from the Payroll Protection Program, emergency loans designed to help small businesses retain workers amid the crisis, and returned the money.

One of the lessons companies learned from the 2008 recession was the importance of anticipating public reaction by increasing transparency around issues such as bailouts, Omens said.

“Part of the management of these issues is transparency and recognizing that there are values associated with these choices,” she said. “We are seeing that play out in real time.”