In difficult times, Corporate America watches over its CEOs

Editor’s note: A version of this story appeared in CNN Business’ Nightcap newsletter. To receive it in your inbox, subscribe for free, here.

new York

Part of the deal with being the boss is that you get paid top dollar in exchange for taking the most risk.

In theory, at least.

But the pandemic era has, in many cases, upended that idea.

See here: Recent filings illustrate how CEOs are still generously compensated even when massive misfires occur under their watch. For example:

South West Airlines

  • Bob Jordan, who took over as CEO in February 2022 – 10 months before the epic collapse of the airline’s holiday travel service – got a 75% pay rise last year, reports my colleague Chris Isidore.
  • Last year, Jordan’s total compensation was $5.3 million, up from $3 million in 2021.
  • In January, Southwest announced a fourth-quarter loss due to the fiasco and warned that the costs of those issues would result in another first-quarter loss. The collapse cost the airline around $800 million.

South Norfolk

  • Alan Shaw, who became CEO of Norfolk Southern in May 2022, saw his pay double last year to a total of $9.8 million.
  • He was on the job for eight months before one of his trains derailed in East Palestine, Ohio, releasing toxic chemicals into the water, ground and air.
  • Last month, Shaw sold $448,000 worth of company stock to personally create a scholarship endowment fund for seniors at East Palestine High School.

Admittedly, these compensation decisions were made by independent boards long before the crisis began for these companies. And none of these guys had been around long enough to be held solely responsible. But the timing of the revelations – with public outrage still smoldering – is, to say the least, awkward.

A representative for the Southwest told CNN that the December cancellations took into account bonuses paid to employees. “Bonus payments would have been higher if not for the holiday disruption,” the rep said, adding that “80% of Bob’s compensation is based on company performance.”

A Norfolk Southern representative pointed to the railway’s latest proxy statement, noting that the board “has approved new performance measures for 2023 and that our management team’s compensation is linked in part to performance. on security measures. Southwest did not respond to a request for comment.

Southwest and Norfolk Southern are hardly exceptions in their largesse.

The median salary for S&P 500 CEOs was $14.5 million in 2021, a 17% increase from the previous year, according to Equilar. This is, of course, more than keeping up with inflation.

Executive compensation – a mix of salary, bonuses and other perks – is still at the highest level. But the gap between what the boss earns and what his typical employee earns has only widened in recent years.

This is a difficult trend to change significantly in Corporate America. The boards that make decisions on CEO compensation are usually made up of executives or former executives from other companies that benefit from the system. And in the end, punishing the CEO may not solve everything that ails the company.

“What you don’t want is an emergency replacement of your CEO because that could be a disaster,” said James Reda, national managing director at consultancy Gallagher. “You don’t want to throw the company into more chaos, which could happen if there’s a vacuum at the top.”

Yet the desire to keep things stable at the top can be its own liability.

Often the CEOs of struggling companies – rather than seeing a pay cut – receive so-called retention bonuses to encourage executives not to flee the sinking ship.

These became a common loophole used to pay executives in early 2020 as dozens of companies rushed into bankruptcy.

Hertz, for example, laid off more than 14,000 employees as the car rental giant exploded in April of that year. And days before it filed for bankruptcy in May, it paid more than $16 million to 340 executives to keep them in place during the restructuring process.

It’s a bad image when a company can’t pay its employees or its debts but can prioritize payments to its already well-paid bosses.

The message these bonuses send is, “When times are good, give your CEO a huge reward. When times are bad, give your CEO a huge reward for not giving up on the business,” said Sarah Anderson, director of the Global Economy Project at the Institute for Policy Studies, a progressive think tank.

After a terrible year in the stock market — 2022 was the S&P 500’s worst year since 2008 — some corporate boards seem to be taking the wrong optics.

Earlier this year, a handful of industry leaders, including Goldman Sachs, Morgan Stanley and Apple, announced they were cutting the salaries of some of Corporate America’s highest-paid bosses.

Of course, you don’t need to shed tears for these guys (they’re mostly men, of course). Apple CEO Tim Cook’s 40% pay cut still leaves him $49 million in total compensation, my colleague Matt Egan reported.

But, in general, the prospect of a recession and layoffs may end up dampening some of the most excessive compensation.

“When all the numbers are calculated, 2022 will be a flat year for CEO compensation,” Reda said. “Some industries will continue to go up, some other industries will take a hit. But I think overall you’ll see pretty flat numbers because it wasn’t a good year for bonuses.

As for the poor optics of some corporate disasters, Reda said: “Sometimes it’s all rosy even though it’s not – the market crashed in March 2022… there were a lot of awards given out before that. .”

Do you like the nightcap? Register and you’ll get all of this, plus other fun internet stuff we’ve loved, delivered to your inbox every night. (OK, most nights – we believe in a four-day work week here.)

Leave a Reply

Your email address will not be published. Required fields are marked *