The practice of cutting the salaries of C-suite executives, begun during the pandemic, is now routine at some companies, The Wall Street Journal reported.
Executives’ base salaries had typically been left alone during previous retrenchments, compensation experts told the Journal, but that changed in response to the COVID-19 pandemic. Twenty percent of businesses in the Russell 1000 announced pay cuts for leadership in 2020, according to Just Capital, a nonprofit tracking how American public companies perform on issues such as worker pay, health and safety, the Journal reported.
“Executives felt a real obligation to send a message to the world, ‘Hey, we’re in this with you, we’re going to feel the pain along with you,’ and so that’s why they” reduced salaries during the pandemic, said Don Lowman, who advises on executive compensation as global leader of consulting firm Korn Ferry’s total rewards practice. “Now, companies are doing layoffs again, and maybe they’re using the playbook that they established back in the early stage of the pandemic.”
Executives at Zoom Video Communications, Seagate Technologies, Intel and Micron Technology have taken cuts to their base salaries this year, as their businesses cut spending and laid off workers.
In February, Zoom announced that it was laying off 15 percent of its staff, or 1,300 people. At the same time CEO Eric Yuan’s base salary was cut by 98 percent, to $10,000, for fiscal year 2024, but that was less than 1 percent of his total pay of nearly $76 million, most of which consisted of long-term stock awards. Base salaries of other top executives at Zoom were reduced by 20 percent for the current fiscal year, and they also forfeited their fiscal 2023 bonuses.
For six months beginning in May, the salaries of Seagate’s CEO and CFO have been reduced by 100 percent, and that of the chief commercial officer has been reduced by 50 percent. The company is aiming for $200 million in annualized savings, starting in the first quarter of fiscal year 2024, according to a filing with regulators.
Intel CEO Patrick Gelsinger’s base salary for 2023 was reduced by 25 percent, the company said. His salary for fiscal year 2022 was more than $1.3 million, accounting for around 11 percent of his total pay of $11.6 million. Executive team members’ pay and board members’ retainers are also being cut.
Micron CEO Sanjay Mehrotra’s salary is being cut by 20 percent , representing less than 5 percent of his total compensation of over $28.8 million, which is primarily made up of stock awards. Micron’s CFO and senior vice presidents are also experiencing base pay cuts. The company said that it was seeking to trim costs in response to a weakening demand for electronics and the chips in them.
While reducing base pay may be intended as indicators of empathy for tough times, as well as a way of reducing expenses, some compensation advisers say that it could be perceived as a token gesture. That is because base pay is often the smallest part of an executive’s pay package, making up 11 percent of chief executives’ overall compensation in fiscal year 2022, according to a Korn Ferry study of CEO pay at 300 of the largest U.S. public companies. “Taking a 25 percent cut on base salary is truly more of a symbolic kind of action than it is a real significant economic action,” Lowman told the Journal. “It is very much intended to be a message to the outside world, as well as to employees: Our executives are sharing the pain that we’re going through.”
Jannice Koors, senior managing director at compensation advisory firm Pearl Meyer, told the Journal that salary cuts remain relatively rare, as companies first go through a ranking of possibilities. “Part of that hierarchy is, before I actually carve into the bone—i.e., the salary—I’m going to take away all of these other things," she said. But in extreme disruption, particularly when a company's financial health is affected by external forces, there is now some sense that “we should all feel the pain together,” she added, and salary cuts are one way to show that.