CEO payment in pandemic: “I win heads, I win numbers almost as much”

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(Bloomberg) – Norwegian Cruise Line called 2020 its “most challenging year”. The company lost $ 4 billion, half a decade in profit. The shares fell 56%. Thousands of crew members lost their livelihoods.

But Frank Del Rio, his chief executive officer, did just great. He collected his largest salary package to date: $ 36.4 million.

As? Corporate boards of directors have trimmed Del Rio and dozens of other CEOs amid the miserable results of the pandemic, security filings show. Otherwise, their salary would have collapsed as it is tied to metrics such as sales, profit and share prices.

The compensation committees decided that the bosses weren’t to blame for the crisis, so they shouldn’t face the consequences. Boards gave “special awards” for perseverance. You’ve relaxed performance goals so executives can continue to collect bonuses. They gave loyalty rewards so they wouldn’t get discouraged and quit.

More than 300 companies have adjusted pay to give top executives a break in 2020 or said they will use discretion on payouts, according to data from the Conference Board, data analytics firm Esgauge and Semler Brossy, a compensation consultancy.

As a result, the leaders as a group amassed hundreds of millions of dollars in bonuses that would otherwise have been destroyed. Norwegian Cruise Line Holdings Ltd. did not respond to requests for comment.

Shareholders – let alone employees – received no such bailout. And in good times, the board members hardly reduce their remuneration because of a strong economy or a stroke of luck and not because of the performance of executives.

“These are the last people to have their salaries adjusted,” said Rosanna Landis Weaver, program manager at As You Sow, a nonprofit that focuses on shareholder advocacy. “If I win heads, I win almost as much – that’s not a pay-for-performance. It’s just ridiculous. “

However, Robin Ferracone, CEO of Forient Advisors, a consultancy that works with corporations to set executive salaries, says it can be sensible and fair to slack off during a major crisis as talented leaders are often sought out and taken over may if they consider themselves inappropriately punished.

Many corporations, particularly in the tech sector or others that benefit from staying-at-home customers, had banner years during the pandemic. The typical company on the Russell 1000, an index of larger companies, reported, according to Bloomberg data obtained from Jan.

“Most companies were sensible and measured in their response in 2020,” said Ferracone.

These behind-the-scenes pay increases are in sharp contrast to what Corporate America said in the early days of the pandemic, when companies announced salary cuts for CEOs in solidarity with frontline workers. A study by governance data provider CGLytics shows that executive salary cuts at 116 companies in the S&P 500 averaged 6% of their 2019 salary packages.

Some companies have made real cuts. Rockwell Automation Inc., which sells industrial equipment, did not pay annual executive bonuses last year, saving the company a few million dollars.

Others, including maker Patrick Industries Inc. and auto dealer Sonic Automotive Inc., canceled some awards last year and instead granted executives stock options to keep them. These have soared in value as both companies’ stocks surpassed their pre-pandemic records.

Sarah Anderson, project leader for global economics at the Institute for Policy Studies, a progressive think tank, says this approach reminds her of bank managers who had options and were lucky enough at the bottom of the Great Recession.

“As after the 2008 crash, corporate boards are once again focused on protecting the paychecks of executives sitting at the corporate summit,” Anderson told lawmakers at a congressional hearing in March.

Larry Culp, CEO of General Electric Co., has taken a break from his board of directors that may not pay off until later. Culp was on track for a godsend. If the stock hit $ 31, he would receive a $ 230 million stock premium.

In the pandemic, GE stock slipped to its lowest level in three decades. Last year the board gave him a new award with a lower bar of $ 16.68 to give him a chance at the jackpot. The board said this was part of a contract extension needed to secure Culp’s continued leadership at an uncertain time.

Some shareholders object to moving the goalposts. In January, more than half of the investors in Walgreens Boots Alliance Inc. voted against the executive salary program.

The pharmacy chain has excluded some of the 2020 results from a bonus calculation. That shift allowed three top bosses to amass $ 7.68 million worth of stock bonuses that would otherwise have lapsed.

Vanguard Group Inc., its second largest shareholder, said in a statement that it rejected the plan because the board’s changes “did not adequately reflect Walgreens’ performance against its competitors.” The votes are non-binding, so the managers still get their money’s worth.

Walgreens said the change had rewarded their “extraordinary efforts” and the unexpected effects of the pandemic.

Nowhere is the gap between pay and company performance – as well as between boss and worker – greater than at Norwegian. The cruise company put down its 28 ships, employing 31,000 crew members who are generally only paid when the ships are in service.

The company cut the salaries of its remaining employees, including CEO Del Rio and other top executives, by 20%.

Then the board stepped in. In July, he awarded Del Rio’s lieutenants $ 2 million each in additional stock awards. And in October, the directors changed the performance criteria for some of their other standout awards – partly for the pandemic, partly for a government-mandated end to cruises to Cuba. As a result, Del Rio’s salary increased by $ 4.4 million.

That month, the CEO, whose contract expired at the end of the year, received an additional $ 8.8 million in cash and stock as retention bonuses so he would stay through 2023 Adjusted earnings were out of reach as the company’s revenue increased 80% had broken in.

In one filing, the Executive Board’s Compensation Committee said it had to “ensure stability in the organization and ultimately drive the recovery of our company.”

The package is due to be voted on by investors on May 20th. The results are not binding, so Del Rio will keep his money regardless of the outcome.

Meanwhile, many Norwegian crew members have left the job, others are waiting and hoping their jobs will return, said Lena Dyring, director of cruise operations for the Norwegian Seafarers’ Union. “It was devastating for seafarers in the cruise industry.”

© 2021 Bloomberg LP

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