Despite all their fine words, CEOs don’t share the pain

We’re all in the same boat, business leaders told us last year when they promised to forgo part of their salaries or bonuses in recognition of the devastation caused by Covid-19.

At the end of last June, 502 American listed companies, 17 percent of the Russell 3000, had announced “adjustments” to the compensation of their CEOs. Retailers, travel groups and manufacturers were most likely to deceive the will of their leaders to share the pain.

It’s part of a larger shift in corporate culture that has seen U.S. leaders speak out on important issues ranging from right to vote and racial inequality at climate change. Last year, nearly 19% of large state-owned companies around the world included some sort of environmental or social goal in their executive compensation plans – double the share of 2017, declares ISS ESG, the data branch of proxy Adviser.

While some adherents of “stakeholder capitalism” may be true believers, others use the doctrine as a guide. marketing ploy and a way to avoid investor pressure to get results.

Taking personal pay cuts during the pandemic last year allowed business leaders to literally put their money where it was. But, with executives being executives, the end result on CEO compensation turns out to be quite different from what the first headlines suggested.

Rather than falling, the median compensation for CEOs of Russell 3000 companies rose 6% last year, according to ISS ESG. At larger companies, the median salary pot of S&P 500 CEOs, including bonuses and long-term stocks, reached $ 13.3 million in 2020, marking the 11th consecutive annual increase. Senior executives have also used corporate jets more widely for personal travel, corporate disclosures show.

In contrast, median employee compensation at S&P 500 companies fell 17% last year, causing the ratio of CEO pay to employee compensation to drop from 182 to 227.

It was largely an American phenomenon. Most European and UK bosses have accepted Covid’s pay cuts alongside their workers: the median salary of Stoxx 600 and FTSE 100 bosses has each fallen 18% to around $ 3 million.

U.S. compensation plans have increasingly depended on stocks, and stocks have been torn apart, thanks to central bank support and the rapid rollout of vaccines. The S&P firmly returned to pre-pandemic levels in November and has since hit a new round of Tops. the Euro Stoxx and FTSE 100 finally recovered their Covid losses last week.

But that’s not the whole story. Some companies played quickly and freely with pay rules to reward senior executives when goals were missed. Fast food group Chipotle, for example, excluded a three-month lockdown (March, April and May) from its calculation of key metrics as well as some Covid-related spending, ISS said, adding that the changes had increased pay. CEO Brian Niccol’s total of $ 23.6. my $ 38 million.

Others have shifted from absolute goals to performance relative to their peers, a measure that can still pay off years with losses. “It’s a challenge for compensation committees,” says Courtney Yu, research director at Equilar salary data group. “How do you get the leaders to come to terms with this situation and take your business out?”

Investors, rightly, have a rather bleak view of these changes. Most executive compensation plans still go through annual general meetings because at Intuit, which won praise to cap payouts and not reset goals. But a growing number of people face strong opposition over size, vague goals, or a sense that management has been given a pass.

So far, 86 major US companies have held AGMs and nearly 9 percent of compensation plans have failed or received less than 60 percent support, up from 5 percent this time last year, Equilar says. Investors voted against compensation plans Alliance of Walgreens boots, who said it would be “unfair and reckless to penalize “ the Covid management team, and Starbucks, where the problem was a $ 50 million retention bounty for Chief Kevin Johnson.

Rebellions are also brewing in companies such as General Electric, AT&T and Wells Fargo. Johnson & johnson shareholders will vote on Thursday to reward Alex Gorsky with $ 29.6 million for “strategic performance,” even though the drugmaker missed most financial targets and spent billions of dollars on opioid and talcum powder claims.

The United Kingdom is not immune: National Express, Glencore and AstraZeneca will soon vote on compensation plans that proxy advisor Glass Lewis considers excessive or out of touch with the reality of Covid.

CEOs can talk until the cows come home to corporate responsibility. Until companies and shareholders end “head I win, tail I win” compensation plans, we must not believe them.

Follow Brooke Masters with myFT and on Twitter

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