CEOs are getting paid bonuses like there was no pandemic

Rising CEO pay during the pandemic amplifies calls to tax the rich

Yum Brands' profits slumped hard last year as the coronavirus pandemic shuttered restaurants around the U.S. That didn't stop the fast-food giant from awarding its CEO a multimillion-dollar bonus.

The company, whose restaurant brands include KFC, Pizza Hut and Taco Bell, disclosed in a recent regulatory filing that CEO David Gibbs had failed to qualify for a hefty payout because of the company's 25% drop in earnings in 2020. Yet Yum's board of directors also said it was "unfair" for the executive to give up his bonus just because of the pandemic's adverse impact on the company's financial results. 

As a result, the board decided to make what it called "discretionary adjustments." Instead of a $0 bonus, Gibbs got $9.5 million. But Yum isn't alone, with other companies also opting to award generous rewards despite their financial struggles.

Take Foot Locker. In determining whether to award a 2020 bonus to CEO Richard Johnson and other top executives for last year, the footwear and apparel retailer added $303 million in sales that it had not made to its financial results. How? In its annual compensation statement, Foot Locker said the adjustment represented an estimate of sales it might have recorded if the company's stores hadn't been closed for part of the year because of the health crisis, as well as during the nationwide social unrest that followed the killing of George Floyd.

Another change: Foot Locker normally sets its financial goals for the year — what the company must generate in sales or income for its executives to earn a bonus — in March. Last year, by contrast, Foot Locker delayed setting its annual goal for 2020 until June — well after the pandemic was underway. 

The goal it set for executives to get bonuses: Sales had to fall less than 28% on the year. After the $303 million pandemic adjustment, Foot Locker's sales fell just 3%. That was key in earning Johnson a $3.8 million cash bonus. His total annual pay — $12 million — amounted to a 30% jump from what he earned in 2019 when the company's annual sales hit an all-time high of $8 billion.

Most of Foot Locker's employees were less fortunate. The company furloughed nearly all of its workers without pay starting in late April of 2020. (It has since offered to hire most of them back.)

Foot Locker did not respond to a request for comment.

Foot Locker CEO Richard Johnson is interviewed on the floor of the New York Stock Exchange, Wednesday, Feb. 1, 2017. Richard Drew / AP

Douglas Chia, president of consulting firm Soundboard Governance, said calculating the appropriate level of CEO pay during the pandemic is complicated. Still, he told CBS MoneyWatch that the size of raises paid to top executives for 2020 is likely to draw scrutiny. 

"If you look at an individual level, it makes sense to make adjustments for something out of the blue and out of a CEO's control," Chia said. "But if you look at it from the perspective of the CEO versus the average worker, whose fault [the pandemic] isn't either, or from a societal perspective, it doesn't look good at all."

"Unforeseen impact"

A spokesperson for Yum Brands said the company's board authorized the adjustment to Gibbs' bonus "in recognition of business results achieved, relative to the unforeseen impact that the COVID-19 pandemic had on our business." The spokesperson said Gibbs also gave up most of his base salary in 2020 in order to fund one-time $1,000 bonuses to the managers of its 1,200 company-owned restaurants.

CEO pay has long been a topic of concern among corporate critics. But the eight-figure paydays can look even more out of place against the backdrop of financial calamity caused by COVID-19 last year.

Many companies have yet to disclose what they paid their CEOs and top executives in 2020 — something public companies are required to tell their shareholders and regulators once a year. Preliminary data suggests that, at least financially, CEOs have fared pretty well during the pandemic. The Wall Street Journal found that the chief executives of the 300 largest public companies in the U.S. got a median pay raise of 15% last year. 

The main reason: The buoyant stock market, which rose more than 16% last year as measured by the S&P 500-stock index. Most CEOs of large companies get a significant portion of their pay packages in company stock. 

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Compensation consultants have long argued that owning stock best aligns the interests of the CEO with those of the company's shareholders, who are the ultimate owners of the company. Yet companies also note that that sticking to pre-set financial goals during economic downturns may not reward corporate leaders for any critical decisions they make that ultimately protect their companies from financial harm or position them to flourish when times improve. 

"No matter how good your incentive plan is, in one year out of 10 you are going to have to make adjustments as to what's fair," said Alan Johnson, one of the nation's top compensation consultants. "When goals become impossible to achieve based on something you could never have anticipated, I am pretty sympathetic to [a company board that says], with the opportunity a CEO had, they did pretty well."

Yet when the stock market and the general economy diverge, as they did in 2020, CEO pay can become grossly out of line with a company's performance. 

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Norwegian Cruise Line, like other cruise operators, was among the companies hit hardest by the pandemic. Onboard outbreaks of the virus earlier in the year, followed by a worldwide cruise ban, led to a loss of $4 billion in 2020. In mid-2020, Norwegian furloughed hundreds of employees and cut the salaries of its remaining staff by 20%. 

That pay cut didn't include CEO Frank Del Rio. Norwegian rewarded him with a more than 100% raise last year to $36.4 million. A Norwegian spokesperson told the Wall Street Journal that Del Rio's pay increase was part of a three-year contract extension in addition to special payouts tied to the management team's performance during the pandemic. 

"Our management team took quick, decisive action to reduce costs, conserve cash [and] raise capital," the spokesperson said.

Norwegian didn't respond to a request for comment from CBS MoneyWatch.

Del Rio's pay included a $3.6 million bonus for 2020, as well as a one-time bonus of $2.8 million. The company said in its annual pay filing that the latter special payout was to "motivate" and retain Del Rio, who the company said had "invaluable expertise and critical industry relationships." 

"[In] some cases it is true that a CEO is unique, but that is the 'go to' argument," Johnson, the pay consultant, said. "The number of CEOs that actually quit is pretty small."

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Not every company chose to shield a CEO's paycheck from their company's poor results last year. For instance, hotel chain Marriott eliminated bonuses for top executives last year. The company also cut the base salary of its former CEO Arne Sorenson to $414,000, from $1.3 million the previous year. Sorenson still made nearly $9 million, mostly from long-time stock awards that paid out last year. But his total payout for 2020 — which was set before his death from cancer earlier this year — 
dropped by more than a third from 2019. 

"Notwithstanding the company's significant accomplishments in the face of the pandemic, our top executive officers] received zero annual incentive for 2020," Marriott said in a filing.

Still, Marriott appears to be one of few companies that didn't seek to insulate corporate pay from the impact of the pandemic.

Changing stock grants

Hilton, for example, in December modified the stock grants of its CEO Christopher Nassetta and other top executives. The crucial change: Hilton's 2020 financial performance no longer factored into whether the hotel chain's executives would be eligible to collect tens of millions of dollars in multi-year stock awards.

As a result, Nassetta earlier this year received a bonus worth $13.7 million in Hilton shares; he also could receive tens of millions of dollars more over the next two years as a result of the board's modifications to the stock grants. Earlier this month, Hilton disclosed in an SEC filing that it paid Nassetta $56 million in 2020, or more than double his comp the previous year.

A Hilton spokesperson told CBS MoneyWatch that the $56 million figure specified in the filing is inflated due to accounting and disclosure rules, including both what the grants would have been worth pre-pandemic as well as their worth after the modification.

"Our CEO did not take home $55.9 million in 2020," the spokesperson said. According to Hilton, Nassetta's compensation for last year is more accurately stated as $20.1 million, a slight drop from 2019.

As for the stock modification, the Hilton spokesperson said, "The resetting of the performance share units was to recognize the company's industry-leading performance in 2018 and 2019, and to align the interests of our management team with the long-term interests of our shareholders."

"Cosmic unfairness"?

Courtney Yu, director of research at one of the nation's leading pay consultants, Equilar, reviewed Hilton's compensation figures at CBS MoneyWatch's request. She said that although Nassetta's pay was technically valued at $56 million, Hilton is correct to say that the figure is based on a number of complex calculations, and is higher than what Nassetta actually earned.

"On the one hand, it does look inflated," Yu said. But "it does reflect the compensation decisions the company made to provide more value to the executives where there wasn't any before." 

Hilton laid off more than 2,000 employees last year and furloughed thousands more — with benefits, but without pay.

"The vast cosmic unfairness of the pandemic affected everyone on the planet," said Rosanna Landis Weaver, who analyzes executive compensation at As You Sow, a nonprofit that promotes shareholder advocacy on inequality, the environment and other issues. 

"I am not sure why a CEO's pay should be insulated from the reality of the year that their workers and the rest of us had to face," Weaver said.

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