More Companies Are Reducing CEO Compensation Due to Poor Quarterly Results

With all the attention the CEO-employee wage gap has gotten over the last year, it's no wonder that some Boards are starting to reduce CEO pay when they agree that it's appropriate.

Although companies that have reduced CEO compensation packages are still the exception rather than the rule (not all reductions are warranted), the CEO ‘pay ratio’ has gotten a lot of attention since the Securities and Exchange Commission forced U.S. companies to spell out just how large the gap is between median employees and their CEOs. The gaps are causing embarrassment for some companies and it seems those companies see dismal quarterly results as a legitimate reason for reducing those gaps.

In 2015, U.S. Steel CEO Mario Longhi took a 35% pay cut as a result of poor performance. The company failed to meet financial targets needed to justify cash incentives for its top executives. Since the Great Recession, when AIG gave out contracted bonuses in the wake of the financial meltdown, “companies increasingly are looking to show investors in poorly performing industries that executives are taking a hit as well,” Andrew Gordon, associate director of research services at Equilar Inc., said in an email, according to TribLive. U.S. Steel lost $1.5 billion and sales tanked 34% last year as the company was hit by low prices, weak demand and high levels of cheap imports. Its stock price declined 70% during the year.

While the CEO can often lose a bonus or commission, U.S. Steel is quick to note that it wasn’t the CEO’s fault. “There wasn’t anything working in the company’s favor last year,” said Andrew Lane, an analyst with Morningstar Inc. in Chicago, TribLive noted. Longhi was praised by U.S. Steel’s board for his work implementing the company’s Carnegie Way initiative, a cost-cutting and profit-boosting program that produced $815 million in savings last year.

Other CEOs whose pay was cut last year include Ameriprise’s James Cracchiolo, whose total compensation package was reduced 15%. Mark Cutifani, chief executive of battered mining company Anglo American, earned 8% less in 2015 compared with the previous year, though the drop was cushioned by the company’s move to make it easier for him to get a bonus, the Journal said. And Sergio Marchionne, the CEO of Fiat Chrysler Automobiles, was paid $10.9 million in 2015, compared with $38.06 million in 2014.

Most recently, Chipotle’s co-CEOs Steve Ells and Monty Moran had their pay cut in half, as compared to their pay of a year earlier. The cuts came primarily from a lack of stock-option rewards—neither CEO was awarded stock options in 2015, but received $23.7 million in options in 2014. The cuts were a direct correlation to all of Chipotle’s recent troubles: in late 2015 and early 2016, a number of E. coli outbreaks were linked to its restaurants in 14 states. Due to those outbreaks, Chipotle’s shares lost 30% of their value in 2015.

Earlier this year, Viacom cut the pay of its Executive Chairman, Sumner Redstone, by 85%. Viacom said that the cuts were due to Redstone’s ‘reduced responsibilities’, but the previous fiscal year saw Viacom’s shares falling by 44%. Shareholders had also raised concerns over Redstone’s health and his ability to effectively run the company.

In Japan, both Toyota and Takata have cut executive pay. Takata’s COO and President, Stefan Stocker, left both roles and was demoted to ‘executive director’ after the auto parts supplier was found to be supplying faulty airbags. His salary was also docked 40%, temporarily. In 2010, Toyota’s CEO Akio Toyoda received a pay cut and forfeited all bonuses after the company’s disastrous safety problems that led to the recalls of 9 million vehicles worldwide.

 

 

 


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