Following the recent market decline, corporate boards are implementing a novel strategy for executive compensation. Some of the most well-known and well-paid CEOs in the country are seeing their pay cut, a trend that may only be just beginning.
Top executives, including Apple’s Tim Cook, Morgan Stanley’s James Gorman and Goldman Sachs’ David Solomon, have suffered pay cuts.
The move follows a difficult year for the stock market, with 2022 being the worst year for the S&P 500 since 2008.
An increasing number of businesses are cutting jobs among their rank-and-file employees as they get ready for potential economic turmoil. The reductions in executive compensation are part of a larger trend in which businesses are attempting to balance the needs of their stakeholders and employees.
Salary cuts are also a response to increasing social and shareholder pressure on companies to demonstrate greater corporate responsibility and accountability.
The trend toward lower CEO salaries suggests that companies are taking these demands for accountability seriously and are looking for ways to demonstrate their commitment to responsible corporate governance.
It is unclear whether the trend of CEO pay cuts will continue or if it will spread to more corporations.
Still, recent moves by corporate boards mark a shift towards greater responsibility and accountability in executive compensation.
Goldman Sachs CEO David Solomon had to cut salaries by nearly 30% after the company laid off 3,200 employees.
Following the announcement of 12,000 job cuts by the company, Google CEO Sundar Pichai also promised a “very significant” pay cut. The difficult economic climate is highlighted by this trend, and top executives must shoulder some of the burden.
CEO pay cuts make the headlines, but the fact remains that these executives are still among the highest paid in the world.
Apple’s Tim Cook is a prime example, as despite a 40% reduction in his target pay package, he still took home $49 million in total compensation.
Research from Equilar shows that the median CEO pay among the 500 largest public companies by revenue rose 18.9% to $14.2 million in fiscal 2021, with tech CEO pay rising the most at 42.1% to $19.1 million.
However, some experts, such as Nell Minow, Vice Chair of ValueEdge Advisors, argue that CEO pay remains excessive, even after the recent cuts. “They are still overpaid. Let me be super clear about that,” Minow stated.
While CEO pay cuts may be a new trend, executives still receive significant compensation compared to the average worker. Whether these cuts will become a permanent trend remains to be seen, but for now, the world’s top CEOs are still earning more than most people can dream of.
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Pay of Execs
Amid a challenging economic environment, corporate boards are cutting the pay of some leading CEOs in a new trend that is gaining momentum.
Tim Cook, CEO of Apple, James Gorman, CEO of Morgan Stanley, and David Solomon, CEO of Goldman Sachs, are among the top executives who have seen their pay reduced.
The pay cuts are a response to the dreadful performance of the stock market in 2022 and the need for corporations to brace for a potential recession by laying off workers. This move is seen as a show of solidarity, with CEOs sharing the pain of the rest of the company.
Nell Minow, Vice Chair of ValueEdge Advisors, which advises institutional investors on corporate governance, is relieved that some boards are finally imposing pay cuts on CEOs. She believes that this is the way pay is supposed to work, as traditionally, CEO pay has been all upside with no downside.
CEOs would often receive all the credit and money for good times but then blame external factors for the downside. The trend of reducing CEO pay is a positive step towards making CEOs more responsible.
Despite the pay cuts, these top executives are still earning significant amounts of money and stock awards.
According to the latest research from Equilar, the median CEO among the 500 largest public companies by revenue made $14.2 million in fiscal 2021, an increase of 18.9% from the previous year.
Tech CEOs have received the largest pay hikes, with the median CEO pay surging by 42.1% in 2021 to $19.1 million.
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However, the trend of cutting CEO pay is still a welcome change for Minow and other corporate governance experts.
“Pay practices were starting to change before the pandemic, but the crisis has only accelerated the trend,” Minow said. “Boards are more likely to take action to reduce CEO pay when there is a crisis.”
This new trend of cutting CEO pay could be just the start of a wider shift in how public companies approach executive compensation.
By putting more pressure on CEOs to share the pain, companies are sending a message that good times and bad, executive pay should be tied to performance.