The Covid-19 pandemic is a serial business killer.
Businesses are struggling to stay afloat and people are losing their jobs as a result.
That’s why so many employees have had to take pay cuts or go or unpaid leave.
And when some companies announce these pay cuts, their CEOs often declare that they are cutting their own pay as well, in a show of solidarity with their employees.
It’s a nice, touching gesture right?
Well, there may be more to it than we think.
Business Experts Say CEOs Taking Paycut During COVID-19 Are Mostly Just Publicity Stunts
See, what many of us don’t know is that CEOs’ salaries are often a very small percentage of their overall compensation.
Most of their income actually comes from bonuses and shares, according to Yahoo Finance.
Take Delta CEO Ed Bastian, for instance, who cut his own salary by 100 percent for six months due to the Covid-19 outbreak.
This sounds very noble of him, but Bastian’s base salary of $891,667 is only 6% of his total compensation package.
If you take into account stock awards, option awards, and other types of compensation that aren’t connected to the company’s stock price, Bastian will earn $14.9 million.
This is why some critics say such announcements are nothing more than publicity stunts to earn goodwill among the public.
“When wealthy CEOs take cuts to their salaries, I want to believe that they’re sincere about doing their part. Unfortunately, the more I look into these matters, it’s merely a public relations show,” said Jack Kelly, founder and chief executive of a New York-based recruitment firm.
These critics may have a point.
Arne Sorenson, chief executive of Marriott hotels, said he would take a pay cut too. His basic salary was $1.3m last year, but his overall compensation was $13.4m.
Disney chairman Bob Iger who said he would give up all his salary, earned $3m in basic salary last year, which was only a fraction of his $47.5m total package.
Increase In Share Prices
Critics also argue that these CEOs benefit directly if the share price rises as a result of the gesture.
According to Yahoo Finance, chief executives are usually given free shares in the company as part of their remuneration package. So, when the company’s share price goes up, their personal wealth also goes up.
See, when a company makes an announcement that its CEO will take a pay cut along with its employees, people look at it as a gesture of goodwill, which often raises the company’s stock price.
And CEOs know this.
“Announcing you will take a salary cut will buy you a lot of goodwill and hopefully raise the company’s stock price. Because the CEO’s bonus is often linked to the share price as well, they will not lose money by giving up some of their salary.” said Sumit Agarwal, an economics professor at the National University of Singapore (NUS).
And even cutting back on staff can seem like a “sacrifice” too.
“When they cutback staff they can say they are making sacrifices personally too,” added Mr Argawal. “It’s all a bit of a publicity stunt.”
Some may argue, however, that there’s no need for CEOs to take a pay cut at all, and the fact that they’re willing to do so, no matter how small the sacrifice, should be viewed admirably.
Plus, cutting back on cash salary may mean that fewer workers will have to take pay cuts or go on unpaid leave.
So, is it a good thing or not? Well, what we’re forgetting is that CEOs can take pay cuts without telling the whole world about it.
As HR consultant Emily Draycott-Jones said: “There’s a lot of respect for leaders doing this quietly and discretely and an awful lot of frustration when it’s a publicity stunt.”
Advertisements
If it truly was a show of solidarity with their employees and not an attempt to raise their share prices, they wouldn’t announce it publicly, would they?