Corporate Compensation and Human Capital Actions in ......Corporate Compensation and Human Capital...
Transcript of Corporate Compensation and Human Capital Actions in ......Corporate Compensation and Human Capital...
Corporate Compensation and Human Capital Actions in Response to COVID-19
Sample as of August 31, 2020
Eric Hosken, Melissa Burek, Bonnie Schindler and Whitney Cook
Compensation Advisory Partners (CAP) is tracking COVID-19 actions for the S&P 500 (500 largest U.S. public companies by market cap), S&P MidCap 400 and S&P SmallCap 600
▪ CAP is monitoring corporate public announcements to compile a database of pay actions taken in response to the COVID-19 pandemic:
• Compensation actions for chief executive officers (CEOs), other executives, boards of directors and employees
• Annual and long-term incentive design changes
• Workforce reductions and expansions
• Changes in dividend policy and share buybacks (not covered in depth in this document)
▪ Corporate actions are made to help companies conserve cash, ensure employee safety, compensate front-line
employees for increased risk, and meet the changing demand for products and services caused by the pandemic
• The stimulus bill limits executive pay and returns to shareholders. Some actions may be to comply with the bill
▪ The three S&P indices were selected because 1) they allow for size comparisons and 2) they make up the S&P Composite 1500 index, which covers approximately 90 percent of the market capitalization of U.S. public companies
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Sample as of August 31, 2020
Company details, as well as more than 600 additional U.S. and non-U.S. companies,
are available on CAP’s COVID-19 Resource Center.
S&P 500 (Large Cap) S&P MidCap 400 S&P SmallCap 600 S&P Composite 1500
500 largest U.S. publicly
traded companies by
market capitalization
400 U.S. publicly traded
companies with a market
cap of $2.4 billion to $8.2
billion at the time of
addition to the index
600 U.S. publicly traded
companies with a market
cap of $600 million to $2.4
billion at the time of
addition to the index
U.S. publicly traded
companies in the S&P
500, 400 and 600 indices;
index covers 90 percent of
U.S. market cap
Companies must meet financial viability requirements for inclusion in all indices
Executive and board pay cuts have been prevalent throughout the crisis. Positive broad-based employee actions were overtaken by negative actions in late March
S&P Composite 1500 corporate actions spiked in late March, remained steady in April, and began to slow in mid-May
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Sample as of August 31, 2020
Number of S&P 1500 Corporate Actions Because of COVID-19By Week of Announcement and Type of Action
Stimulus Bill
Signed
Mar 27
Stock Market
Worst Week
Mar 23
U.S. Declares National
EmergencyMar 13
U.S. Unemployment
Hits 14.7%
May 13
Executive Pay Reductions
Board Pay Reductions
Negative Broad-basedEmployee Actions
Positive Broad-basedEmployee Actions
Incentive Plan Changes
Shareholder Actions
0
100
200
300
400
500
600
700
Mar 1 Mar 15 Apr 1 Apr 15 May 1 May 15 Jun 1 Jun 15 Jul 1 Jul 15 Aug 1 Aug 15
To
tal W
eekly
Action
s
Six months into the pandemic, select companies are beginning to announce modifications to prior salary actions and/or changes to their outstanding annual and long-term incentive▪ Salary Actions
• Restore all or a portion of salaries
• Extend salary cuts
• Make up lost compensation
▪ Annual Incentive Plan Changes
• Change or supplement performance measures
• Reduce target opportunities and/or maximum payouts
• Adjust payout timing and measurement periods
• Cancel plans
▪ Long-Term Incentive Plan Changes
• Adjust performance measures and goals
• Change the mix of LTI vehicles
• Shorten the duration of plans
• Reduce award opportunities
• Shift to retention vehicles from performance-linked vehicles that require goal-setting
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Sample as of August 31, 2020
CAP’s report of these actions provides a glimpse into decisions being made by
compensation committees across corporate America.
Over half of S&P 1500 companies have announced compensation and human capital actions in response to COVID-19
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Sample as of August 31, 2020
Companies Taking Action in Response to COVID-19
297
200
284
59%
50%
47%
0%
10%
20%
30%
40%
50%
60%
70%
0
50
100
150
200
250
300
350
S&P 500 (LargeCap) S&P MidCap 400 S&P SmallCap 600
% o
f In
dex C
om
pan
ies
# o
f C
om
pan
ies
# of Index Companies % of Index Companies
The stock market is improving, but companies that reported actions still have significant market cap declines. Smaller companies have fared less well throughout the crisis
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Sample as of August 31, 2020
Companies in S&P Indices that Took Action vs.
Overall Index Market Cap Decline
Mar 1 - Mar 31
Companies in S&P Indices that Took Action vs.
Overall Index Market Cap Decline
Mar 1 – Aug 31
S&P Indices
Companies in S&P Indices that Reported Actions
2% 2% 2%
-25%
-40%
-44%
S&P 500(Large Cap)
S&P MidCap400
S&P SmallCap600
14%11% 12%
5%
-11%
-18%
S&P 500(Large Cap)
S&P MidCap400
S&P SmallCap600
The consumer discretionary and industrials sectors acted early and on a sustained basis
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Sample as of August 31, 2020
Oil Prices
Turn Negative
States Begin Closing
Nonessential Businesses
Note: Sector breakdown by industry group is detailed on page 18
Number of S&P 1500 Corporate Actions Because of COVID-19By Week of Announcement and Industry Sector
Airlines
Slash
Capacity
Communication Services
Consumer Discretionary
Consumer Staples
Energy
Financials
Health Care
Industrials
Information Technology
Materials
Real Estate
Utilities
Federal Reserve Cuts Interest
Rates by Half A Percentage
Point
0
100
200
300
400
500
600
700
Mar 1 Mar 15 Apr 1 Apr 15 May 1 May 15 Jun 1 Jun 15 Jul 1 Jul 15 Aug 1 Aug 15
Tota
l W
eekly
Actions
CEO pay cuts were made by one in four firms, while executive and board pay cuts were made by about one in five. Large- and mid-cap companies have been less likely to cut board payCAP believes that some companies have refrained from cutting board pay because of the increase in the workload for the board and the need for management to have external advice. While S&P 600 companies have been more likely to cut director pay, the size of the pay cuts has been smaller.
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Sample as of August 31, 2020
S&P 500 (Large Cap)
S&P MidCap 400
S&P SmallCap 600
23% (n=114)
21% (n=104)
16% (n=80)
26% (n=104)
24% (n=94)
18% (n=73)
27% (n=164)
24% (n=146)
23% (n=137)
Executives: Reduced CEO Base Salary
Executives: Reduced Other Executive Base Salary
Board of Directors: Reduced Pay
CEO salary cuts are more common than bonus actions, but CAP expects many companies not to pay bonuses in 2020 or to increase discretion in bonus decisions
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Sample as of August 31, 2020
Number of Companies Reducing
CEO Salary Only, Bonus Only or Both by Index
Reduced Only CEO Bonus
(n=4) 3%
Reduced CEO Salary & Bonus
(n=9) 8%
Reduced Only CEO Salary (n=105) 89%
S&P 500 (Large Cap)
Reduced Only CEO Bonus
(n=2) 2%Reduced CEO
Salary & Bonus (n=13) 12%
Reduced Only CEO Salary (n=91) 86%
S&P MidCap 400
Reduced Only CEO Bonus
(n=6) 4%
Reduced CEO Salary & Bonus
(n=11) 6%
Reduced Only CEO Salary (n=153) 90%
S&P SmallCap 600
The median CEO salary cut is 50% in large- and mid-cap companies, and 30% in small-cap firms. Other executive salary cuts are made on a graduated scale, with typical cuts at 20% to 25%
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Sample as of August 31, 2020
Disclosed CEO Salary Reduction
Among Those Reducing
Disclosed Executive Salary Reduction
Among Those Reducing
23%
8%
27%
10%
15%
5%
12%
22%
2%
24%
11%
17%
1%
23%
18%
3%
20%
11%
16%
3%
29%
Not Defined
Under 20%
20% - 29%
30% - 49%
0.5
51% - 99%
Forfeit 100%of Salary
S&P 500(Large Cap) (n=114)
S&P MidCap 400 (n=104)
S&P SmallCap 600 (n=164)
25%
26%
23%
12%
9%
2%
1%
27%
20%
27%
14%
10%
2%
1%
18%
13%
43%
5%
10%
5%
6%
Not Defined
Under 20%
20% - 29%
30% - 49%
0.5
51% - 99%
Forfeit 100%of Salary
S&P 500(Large Cap) (n=104)
S&P MidCap 400 (n=94)
S&P SmallCap 600 (n=146)
S&P 500 (large cap) and S&P MidCap 400 companies cut director cash retainers by a median of 50%. S&P SmallCap 600 firms applied a lower 30% cut to retainers. The duration of cuts is typically not defined
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Sample as of August 31, 2020
Amount and Duration of Cuts to Board of Director Cash Retainers by Index
S&P 500 Disclosed Pay Reduction (n=80)
Duration Prevalence 100% 51%-100% 50% <50% Not Defined
Balance of 2020 22 8 0 4 8 2
4 to 6 Months 14 7 0 1 6 0
1 to 3 Months 16 1 0 5 8 2
Duration of Crisis/Not Defined 28 8 0 2 9 9
Total 80 24 0 12 31 13
S&P 400 Disclosed Pay Reduction (n=73)
Duration Prevalence 100% 51%-100% 50% <50% Not Defined
Balance of 2020 16 3 0 7 5 1
4 to 6 Months 9 2 0 1 6 0
1 to 3 Months 15 7 0 2 6 0
Duration of Crisis/Not Defined 33 7 0 4 8 14
Total 73 19 0 14 25 15
S&P 600 Disclosed Pay Reduction (n=137)
Duration Prevalence 100% 51%-100% 50% <50% Not Defined
Balance of 2020 23 3 1 2 14 3
4 to 6 Months 10 3 0 1 5 1
1 to 3 Months 19 6 0 4 8 1
Duration of Crisis/Not Defined 85 17 1 10 35 22
Total 137 29 2 17 62 27
The prevalence of adverse broad-based employment actions spans the three indices, with furloughs being most common
S&P 500
(Large Cap)
S&P MidCap
400
S&P SmallCap
600
Total companies taking adverse actions 25% (n = 127) 24% (n = 106) 28% (n = 169)
Furlough of employees 19% 21% 22%
Reduced pay 8% 12% 15%
Reduced workforce 8% 9% 7%
Suspended raises and/or bonuses 6% 6% 6%
Suspended 401(k) match 3% 5% 5%
Broad-Based Adverse Employment Actions
Because of COVID-19
Sample as of August 31, 2020
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Note: Furlough refers to a temporary unpaid leave for a certain length of time, while workforce reduction is a permanent action.
A cut in CEO pay is often coupled with actions that adversely affect the broader employee population to communicate that “we are in this together”
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Sample as of August 31, 2020
Prevalence of Adverse Broad-Based Actions
at Companies that Cut CEO Pay
15%
15%
21%
51%
65%
84%
16%
17%
25%
43%
60%
78%
11%
19%
26%
34%
58%
75%
Suspended 401(k) Match
Suspended Raises and/or Bonuses
Reduced Workforce
Reduced Pay
Furlough of Employees
Any Adverse Broad-Based Actions
CEO Salary Reduction
S&P 500 (Large Cap)(n=114)
S&P MidCap 400(n=104)
S&P SmallCap 600(n=164)
CEO Salary Reduction
Large firms have been much more likely to take positive actions, such as expanded benefits and additional compensation for front-line employees, than smaller peers
S&P 500
(Large Cap)
S&P MidCap
400
S&P SmallCap
600
Total companies taking positive actions 24% (n = 119) 11% (n = 44) 5% (n = 36)
Expanded benefits programs 13% 5% 3%
Guaranteed pay continuity 8% 5% 2%
One-time bonus 8% 3% 1%
Additional pay for on-site employees 7% 3% 2%
Expanded workforce 4% 0% 0%
Broad-Based Positive Employment Actions
Because of COVID-19
Sample as of August 31, 2020
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Note: Expanded benefits include actions such as additional paid time off and paid medical coverage for COVID-19
Detailed Findings
25%
23%
19%
6%
3%
2%
1%
21%
12%
8%
6%
4%
7%
5%
4%
4%
1%
3%
2%
Executives: Reduced CEO Base Salary
Executives: Reduced Other Executive Base Salary
Board of Directors: Reduced Pay
Executives: Suspended Raises and/or Bonuses
Executives: Reduced CEO Incentive Compensation
Executives: Reduced Other Executive Incentive
Executives: Reduced Executive Chairman Pay
Furlough of Employees
Non-Executives: Reduced Pay
Reduced Workforce
Non-Executives: Suspended Raises and/or Bonuses
Suspended 401(k) Match
Expanded Benefits Programs
Non-Executives: Guaranteed Pay Continuity
Non-Executives: One-Time Bonus
Non-Executives: Additional Payments for On-Site Employees
Expanded Workforce
Annual Incentive Plan Changes
Long-Term Incentive Plan Changes
Execu
tive
s /
BO
DB
roa
d-B
ase
d E
mp
loye
es
Ince
ntive
De
sig
n
What are Companies Doing Right Now?S&P 1500 (n=1500)
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Po
sitiv
e A
ctio
nN
egative A
ction
Sample as of August 31, 2020
23%
21%
16%
6%
3%
2%
2%
19%
8%
8%
6%
3%
13%
8%
8%
7%
4%
4%
2%
Executives: Reduced CEO Base Salary
Executives: Reduced Other Executive Base Salary
Board of Directors: Reduced Pay
Executives: Suspended Raises and/or Bonuses
Executives: Reduced CEO Incentive Compensation
Executives: Reduced Other Executive Incentive
Executives: Reduced Executive Chairman Pay
Furlough of Employees
Non-Executives: Reduced Pay
Reduced Workforce
Non-Executives: Suspended Raises and/or Bonuses
Suspended 401(k) Match
Expanded Benefits Programs
Non-Executives: Guaranteed Pay Continuity
Non-Executives: One-Time Bonus
Non-Executives: Additional Payments for On-Site Employees
Expanded Workforce
Annual Incentive Plan Changes
Long-Term Incentive Plan Changes
Execu
tive
s /
BO
DB
roa
d-B
ase
d E
mp
loye
es
Ince
ntive
De
sig
n
What are Companies Doing Right Now?S&P 500 (Large Cap) (n=500)
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Sample as of August 31, 2020
Po
sitiv
e A
ctio
nN
egative A
ction
26%
24%
18%
5%
4%
3%
2%
21%
12%
9%
6%
5%
5%
5%
3%
3%
0%
3%
1%
Executives: Reduced CEO Base Salary
Executives: Reduced Other Executive Base Salary
Board of Directors: Reduced Pay
Executives: Suspended Raises and/or Bonuses
Executives: Reduced CEO Incentive Compensation
Executives: Reduced Other Executive Incentive
Executives: Reduced Executive Chairman Pay
Furlough of Employees
Non-Executives: Reduced Pay
Reduced Workforce
Non-Executives: Suspended Raises and/or Bonuses
Suspended 401(k) Match
Expanded Benefits Programs
Non-Executives: Guaranteed Pay Continuity
Non-Executives: One-Time Bonus
Non-Executives: Additional Payments for On-Site Employees
Expanded Workforce
Annual Incentive Plan Changes
Long-Term Incentive Plan Changes
Execu
tive
s /
BO
DB
roa
d-B
ase
d E
mp
loye
es
Ince
ntive
De
sig
n
What are Companies Doing Right Now?S&P MidCap 400 (n=400)
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Sample as of August 31, 2020
Po
sitiv
e A
ctio
nN
egative A
ction
What are Companies Doing Right Now?S&P SmallCap 600 (n=600)
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Sample as of August 31, 2020
Po
sitiv
e A
ctio
nN
egative A
ction
27%
24%
23%
6%
3%
3%
1%
22%
15%
7%
6%
5%
3%
2%
1%
2%
0%
3%
2%
Executives: Reduced CEO Base Salary
Executives: Reduced Other Executive Base Salary
Board of Directors: Reduced Pay
Executives: Suspended Raises and/or Bonuses
Executives: Reduced CEO Incentive Compensation
Executives: Reduced Other Executive Incentive
Executives: Reduced Executive Chairman Pay
Furlough of Employees
Non-Executives: Reduced Pay
Reduced Workforce
Non-Executives: Suspended Raises and/or Bonuses
Suspended 401(k) Match
Expanded Benefits Programs
Non-Executives: Guaranteed Pay Continuity
Non-Executives: One-Time Bonus
Non-Executives: Additional Payments for On-Site Employees
Expanded Workforce
Annual Incentive Plan Changes
Long-Term Incentive Plan Changes
Execu
tive
s /
BO
DB
roa
d-B
ase
d E
mp
loye
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Ince
ntive
De
sig
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COVID-19 Actions by Industry (Reconciliation of Industry and Industry Sector on Next Page)
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Sample as of August 31, 2020
Number of Companies Taking Compensation and Human Capital Actions by Industry
vs. Number of S&P 1500 Companies in Each Industry
Notes:
- The capital goods sector, also known as industrials, includes manufacturing, aerospace and defense, engineering and construction. The consumer services sector refers to
services sold to individuals as opposed to organizations. Examples include auto maintenance and home security.
- Bar chart excludes industries with few compensation and human capital actions in response to COVID-19
S&P Indices
Companies in S&P Indices that Reported Actions
153
120
108 110
92
7975
78
71
65
5954
4439
35
24
Capital Goods59%
Real Estate39%
Health Care50%
Banks65%
Materials42%
Retailing86%
Energy61%
Software &Svs.50%
IT48%
Financials35%
Cons. Dur.75%
Cons. Svs.85%
Comm. & Prof.Svs.61%
Media62%
Transportation77%
Auto88%
90
4754
71
39
68
4639
3423
44 46
27 24 2721
Sector Breakdown by Industry
20
Sample as of August 31, 2020
Communication Services Media & Entertainment, Telecommunication Services
Consumer DiscretionaryAutomobiles & Components, Consumer Durables & Apparel,
Consumer Services, Retailing
Consumer StaplesHousehold & Personal Products, Food, Beverage & Tobacco,
Food & Staples Retailing
Energy Energy
Financials Banks, Diversified Financials, Insurance
HealthcareHealth Care Equipment & Services, Pharmaceuticals,
Biotechnology & Life Sciences
Information TechnologySemiconductors & Semiconductor Equipment, Software &
Services, Technology Hardware & Equipment
Materials Materials
Real Estate Real Estate
IndustrialsCapital Goods, Commercial & Professional Services,
Transportation
Utilities Utilities
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