CEO Compensation was a Joke Before Covid-19

Proxy Commentary

CEO Compensation was a Joke Before Covid-19

In an era of sacrifice, risk, and despair for many employees, one group of employees has yet again defied the norm, often with significant increases in actual compensation and wealth during the COVID-19 pandemic and resulting economic and societal turmoil. Who are these lucky ducks— top executives and most especially CEOs at America’s big public companies.

Robert Iger, the former CEO of Disney, a company severely impacted by the current situation, is one of them, with a total compensation payout of $47 million in 2019, which believe it or not is down significantly from the year before (DIS EJP Compensation Rating “Some Concerns”). Even with that level of enrichment, enough shareholders voted for the company’s sayon-pay proposal for it to pass. Egan-Jones’ standard guideline recommendation was of course “Against”. At the same time, many of the company’s furloughed employees have desperately tried to get unemployment benefits.

Another company devastated by COVID-19; American Airlines Group (AAL EJP Compensation Rating “Needs Attention”) paid its CEO nearly $12 million for the last fiscal year. Meanwhile, its pilots and other employees face an increasingly dim future despite the recent government bailouts as the pandemic continues. Wouldn’t it be nice if some of that $12 million in compensation went to help the people who fly the planes and take care of the passengers?

Still another example of many can be found in the oil industry, specifically Marathon Petroleum Corporation. With a CEO payout of over $24 million, almost $2 million of that in risk-free salary, the firm also earned an “Against” recommendation for both say-on-pay and the one Compensation Committee member who was actually up for election (MPC EJP Compensation Rating “Needs Attention”).

It would be bad enough if these ridiculous, consistent, and ever-increasing payouts were the extent of the problem, but they are not. In many cases we find compensation disclosure to be far beyond “smoke and mirrors” with techniques that can only be on purpose, to confuse and deceive shareholders and the analysts that serve them. Examples include compensation tables with an extra column floating but not attached to the table, which contains lower numbers than the actual final numbers, which does a really good job of fooling the data extracting scripts. Indeed, just this week I had to explain to a junior analyst why a proposal to “save the shareholders taxes” was a stock option plan fleecing shareholders to continue richly compensating executives.

This philosophy of CEOs and executives before shareholders and employees needs to end now. It should have ended long ago but it needs to end now before we do still more damage to our companies, economy, and shareholders. In this new Covid-19 world we find ourselves in, executives at companies that receive bailouts, contracts and other taxpayer goodies need to be paid like the government vassals they have become. I believe a senior GS-15 in the higher paid parts of the East Coast makes about $160,000 with maybe a bonus of $5,000 to $10,000 but more likely a few extra hours of vacation. Or, if you want to make a comparison for the biggest of companies, a three-star general makes about $165,000 with a free house and car usually thrown in.

If people with arguably much more responsibility make so much less, how can we justify paying our CEOs so much more, especially at the expense of taxpayers, shareholders, and employees? Maybe the government should impose a compensation cap of $100,000 to $500,000 on any company that receives or takes advantage of a Treasury or other government bailout program or has more than $10,000,000 in government contracts. Cutting a million from a $2 million plus salary while keeping or increasing the stock option payouts is not going to get you anywhere near this suggestion.

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