We were told we were all in this together, I recall, when COVID-19 emerged and the havoc it would wreak on the world’s economy was still unknown. Companies announced that their CEOs, executive teams or boards would take a pay cut – it was the right thing to do, after all.
But it was unlikely that the announced reductions to executives’ salaries would make much of a dent, and 2020 pay disclosures, as well as a new report from a compensation consultant, now make it clear that the folks at the top ultimately gave up very little.
The reason for this, as compensation nerds know, is that salaries make up an ever-smaller portion of executive pay packages. The vast majority of executive compensation is “at risk,” we are told, and includes stock options and other share awards, plus annual cash bonuses and other long-term incentive plans.
While most of us can only dream of the typical $1-million CEO base annual salary, it’s the other stuff that can push the total pay to $10-million or more. In The Globe and Mail’s survey of 2019 CEO pay at the 100 biggest Canadian companies, the average salary of $1.16-million accounted for just 13.5 per cent of total compensation of $8.61-million.
So a passing familiarity with math tells you that cutting 20 per cent of something that comprises just 10 per cent of pay will yield a cut of only 2 per cent.
Indeed, the real-life numbers support that.
Diligent Corp., a U.S.-based company that sells corporate governance software, examined salary-cut announcements from 240 large Canadian companies in 2020. The firm estimated the foregone salary, compared it with 2019 realized pay and figured the cuts were worth about 5 per cent of the total. It found only six examples where cuts amounted to 10 per cent or more of an executive’s total pay.
When Diligent included pay at companies that made no announcements about pay cuts – about 10 per cent of Canadian companies, it believes – it figured that only about 1 per cent of total executive pay was waived because of the pandemic. (Another note for nerds: Diligent’s methodology uses what it calls “realized pay,” so it’s looking at stock-option profits in 2019, not what companies estimate as the value of options when they’re granted.)
Many of Canada’s top companies have now released their 2020 pay numbers, and they further confirm that sacrifices among the executive set were relatively small.
In early April, 2020, Telus Corp. said CEO Darren Entwistle would forgo his salary for April, May and June and “donate it to Canadian health care workers on the front lines, battling COVID-19.” His family foundation would match it, Telus added.
Telus said it was putting out the news release “in response to queries related to an internal bulletin sent out to TELUS employees,” suggesting it was forced to disclose such news and did not want to make such a terribly big deal of it. However, the information also appears on page two of the company’s proxy circular to shareholders.
That proxy detailed that Mr. Entwistle’s salary fell 25 per cent, or $343,750, to $1,031,250. But his total compensation jumped 24 per cent, to $16.04-milion, from his 2019 pay package of $12.92-million. His bonus increased to $855,980 from $727,765, and his option and share awards climbed to $12.86-million from $9.98-million. The Telus board increased the stock awards “given the corporate performance in 2020 and Darren’s exceptional leadership.”
Enbridge likewise disclosed executive pay cuts in its May 7, 2020, earnings announcement, saying they were part of “company-wide salary rollbacks and a voluntary workforce reductions program.” The executive leadership team would see a 10-per-cent cut, and the board of directors and CEO Al Monaco would forego 15 per cent, Enbridge said.
The company’s newest proxy circular, however, notes that Mr. Monaco got a raise on April 1, so the $1,546,139 in salary he received in 2020 was just 3 per cent – $46,739 – less than in 2019. All told, he made $17.05-million, down 5 per cent from 2019, largely owing to a reduction in the increase in value of his pension. The company gave him stock and option awards it valued at $10.78-million, up from $9.46-million the year before.
Nonetheless, the Enbridge salary cuts have been a problem, the company says in its proxy. “We have been closely monitoring the impact that our base salary reductions have had on our competitiveness. In light of the success of our cost reduction initiative, business performance in 2020 and to align with our compensation philosophy of providing market competitive pay levels, reinstatement of pre-rollback base salaries will take place in 2021.”
Oh, well. I’d say I’m glad this suggests we’re getting back to a prepandemic normal. But in the world of executive pay, I don’t think things ever really changed.
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