CEO Pay is again in the spotlight of the 2020 AGM Proxy Season. With the COVID-19 pandemic affecting many aspects of the business, a large portion of companies have proceeded with executive compensation adjustments as a response.

How has the compensation scene changed over the last year? Of course, the proxy season has yet to be finished, hence the ranking of the companies and analysis will change over time. Nevertheless, it is worth reviewing the changes over the year so far, and the impact of any decisions made to the compensation practices of companies.

In this article we have included how the performance of the company has changed to understand how executives are rewarded compared to company performance.

Key CEO pay takeaways in 2020 so far:

• • – The sum of the top 50 total granted compensation has decreased by 53% from 2018 to 2019 ($4.73bn in 2018 down to $2.24bn in 2019).
  • – Last year’s top paid individual and company is not included in this year’s top 50 highest paid executives as he was granted only USD 23,760. He exercised, however, a total of USD 30,483,520 in options. Last year, Elon Musk’s pay accounted for over 50% of the $4.73bn granted of the 50 highest paid executives.
  • – This year’s first place for highest paid CEO, belongs to Sundar Pichai of Alphabet Inc., whose payment represents almost 13% of the $2.15bn.
  • – A few companies that have made it onto the list of the top 50 highest paid CEOs have also made changes due to COVID-19, either on their compensation practices or dividends:

• The Walt Disney Company: The Walt Disney Company (DIS) announced that in response to the business challenges relating to COVID-19, each of the Company’s named executive officers agreed to receive a temporary reduction in their base salaries, effective with the payroll period commencing April 5, 2020. The Executive Chairman, and former Chief Executive Officer, of Walt Disney agreed to forego all of his compensation except a portion of his base salary.
• Burlington Stores, Inc.: Burlington’s CEO, Michael O’Sullivan, will not take a salary, while the company’s Board of Directors will forfeit their cash compensation, and the Company’s executive leadership team has voluntarily agreed to decrease their salary by 50%.
• Comcast Corporation: Comcast Chief Brian Roberts, NBCUniversal CEO Jeff Shell and other division leaders at Comcast will donate their salaries to coronavirus-related relief efforts as the world grapples with the devastating pandemic.
• Fiserv Inc.: Fiserv Inc.’s top executives are taking temporary base salary pay cuts to compensate employees, who experience financial hardship due to the COVID-19. The Company disclosed that its Chairman & CEO, Jeffery Yabuki, and President & Chief Operating Officer, Frank Bisignano, have each agreed to forgo 100% of their base salary.
• Wells Fargo & Company, Arconic, Inc.,The Walt Disney Company, The Kraft Heinz Company, and Fiat Chrysler Automobiles N.V. have also implemented dividend cuts or changes due to COVID-19.

• – It is also worth noting, the average growth in market capitalization in 2019 (of the 50 highest paid Executives) was 43%. A big increase compared to the growth of 1% seen in 2018.
• – One-year Total Shareholder Return (TSR) growth also saw an increase of as much as 42%!

Please note: Compensation in USD – exchange rates based on single point of time, end of tax year 2019.

Shareholders, including large institutional investors, are continuing the growing momentum to link executive pay to company performance.

The UK Investment Association, which represents more than £7 trillion ($9 trillion) in assets, responded to investor dissent of FTSE350 companies not acting on executive pay concerns by issuing a new version of executive pay guidelines for disclosures in 2019. With a statement claiming, “companies need to demonstrate the link between pay and company performance. If they don’t, they should brace themselves for more shareholder revolts”. It is clear from this statement that executive pay and pay regimes are still hot topics.

In the US, the Council of Institutional Investors (CII) have also commented in the past on the “excessive complexity in U.S. executive pay plans, and questions on the effectiveness of approaches to pay-for performance.”

There are indeed vast disparities between compensation at select companies within the S&P500 index and their Total Shareholder Return (TSR).  CGLytics, as part of its S&P 500 CEO/Executive Compensation review, has developed an extremely granular view of CEO pay in comparison with performance for the index, helping to focus the debate on the issue.  The review examines different aspects of CEO pay among the constituents of the S&P 500index, including fixed v. variable compensation mix, overview of Pay vs. TSR, and a pay for performance review on a one- and three-year basis.

Realized Pay Correlates with Growth

CEOs received an average of $14,748,284 in Total Granted Compensation (TGC) and $19,276,476 in Total Realized Compensation (TRC) in 2018, the report shows.  Yet the average TSR for S&P 500 companies in 2018 was -6 percent. While this is an improvement from 2008, in which average TSR was -39 percent (average granted pay was $9,563,165 and average realized pay was $10,318,656), it is not a result that is likely to satisfy shareholders.

Indeed, the report indicates a trend that supports the need for performance-related incentives: Granted pay steadily increases from year to year while realized pay tends to coincide with absolute growth.

That need is further supported by the comparison of CEO pay with TSR. Naturally a zero-percent margin or zero disparity between a CEO’s realized pay and the company’s TSR is considered perfect alignment.

Historic number of shareholders oppose boards on executive pay

Companies such as Michael Kors Holdings Limited, NVIDIA Corporation, Constellation Brands, Inc., Goldman Sachs Group, and Capital One Financial Corporation all had CEOs rank in the top of their sectors for Total Realized Compensation in 2018. Yet, each of these companies also had a 2018 TSR in the bottom 20 percent of their industry.

Not surprisingly, this leads to shareholders questioning the pay practices of the board, and, in fact, opposition from shareholders for executive compensation issues is at an all-time high. In total, about six percent of director nominees have received less than 80 percent support, and 0.3 percent have not secured majority support. Eight percent of Say on Pay votes have secured less than 70 percent support, and two percent have not achieved majority support.

These numbers may seem small, but they are actually historic in significance compared with previous years’ levels of opposition for related AGM items. It is clear that large passive investors have become more hesitant to approve large one-time retention awards, unrestricted equity to executives, and executive incentive grant with no performance criteria.

To learn more about the Say on Pay landscape of the S&P 500 index, click here to download the full report.

Randstad N.V. is a leading global HR services company. The company, which is headquartered in Diemen, Netherlands, provides work for more than 670,000 people
around the world each day.

With anything less than 80% of approval from shareholders on remuneration policies now deemed as negative by stakeholders (compared to 50% five years ago), and justification requirements increasing (inpart due to implementation of the Shareholders’ Right Directive II in Europe), companies’ remuneration policies are coming
under greater scrutiny.

Going into the next proxy season, Randstad wants to know which KPIs are being used by other companies to form their own opinion and they also want to compare executive remuneration against peers’ and understand how they will be perceived by proxy advisors like ISS and Glass Lewis.

Read the full story here and find out why Ranstad now goes into their AGMS with greater confidence and how they are able to make data-based decisions rather than assumptions.