Corporate boards are cutting pay for some key CEOs, a new trend that may just be starting.
The pay cuts have affected some of America’s most famous and best-paid bosses, including Apple CEO Tim Cook, Morgan Stanley CEO James Gorman and Goldman Sachs CEO David Solomon.
The moves come after a bad year for the stock market — 2022 marks the worst year for the S&P 500 since 2008 — and as more companies lay off rank-and-file workers in response to a potential recession.
Goldman Sachs, for example, laid off 3,200 employees earlier this month amid sluggish trading on Wall Street. The bank then disclosed on Friday that Salomon’s pay would be cut by nearly 30% in 2022. Profits at Goldman Sachs fell 49% last year as a slowdown in deals held back advisory fees.
“This is a show of solidarity. CEOs need to share the pain,” said Nell Minow, vice chairman of ValueEdge Advisors, which advises institutional investors on corporate governance issues.
Sundar Pichai, chief executive of Google parent Alphabet (GOOGL), could face a similar pay cut.
After Alphabet announced it was cutting 12,000 jobs this month, Pichai told employees executives would take “significant” pay cuts, Business Insider reported. Google did not respond to a request for comment.
But don’t feel sorry for these top executives. They’re still earning decent cash and stock awards, just not as much as they used to.
Apple, for example, said it would cut Cook’s target compensation by 40%. But that still leaves him with a massive $49 million total compensation.
“They’re still overpaid. Let me be very clear about that,” Minow said.
Among the 500 largest public companies by revenue, CEOs will earn a median of $14.2 million in fiscal year 2021, up 18.9% from the previous year, according to new research from Equilar.
Tech bosses will get the biggest raises, with median CEO pay soaring 42.1% in 2021 to $19.1 million, Equilar said.
Earlier this month, Morgan Stanley announced that Gorman’s total compensation for 2022 will be $31.5 million, down 10% from the previous year. The Wall Street bank said its compensation committee took into account the fact that “the firm’s performance in 2022 was less robust than the previous year amid challenging economic and market conditions” when delivering the record performance.
Minow takes comfort in the pain some boards are foisting on CEOs.
“That’s exactly how compensation should be done,” Minow said. “Traditionally, the problem with pay is that it’s always been up, not down. CEOs usually get all the credit and money during the boom and then blame the downturn on El Niño or some outside force. Now they’re being forced to take on more responsibility.”
Of course, part of the blame is because the rules have changed.
After the Dodd-Frank Act was introduced in 2010, regulators required public companies to give shareholders a say in compensation. So-called “speak on pay” votes are advisory, meaning that even if 100 percent of shareholders vote no, the company can still move forward. Still, having shareholders reject pay packages is an embarrassment that companies try to avoid.
Last year, JPMorgan took a hit when its shareholders voted down a planned $52.6 million retention bonus for Chief Executive Jamie Dimon.
This month, JPMorgan Chase & Co. announced that Dimon’s compensation would remain unchanged at $34.5 million — even as wages for rank-and-file workers are rising. The bank also said it decided not to award Dimon a special annual award.
That means Dimon’s salary hasn’t changed even as wages for many employees have risen.