corporate compensation and human capital actions in response … · 2020-06-08 · compensation...
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Corporate Compensation and Human Capital Actions in Response to COVID-19
Sample as of June 5, 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
• 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
1
Sample as of June 5, 2020
Company details, as well as more than 600 additional U.S. and non-U.S. companies,
are available on CAP’s website.
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
0
100
200
300
400
Mar 2 Mar 9 Mar 16 Mar 23 Mar 30 Apr 6 Apr 13 Apr 20 Apr 27 May 4 May 11 May 18 May 25 Jun 1
To
tal W
eekly
Action
s
Executive and board pay cuts have been prevalent throughout the crisis. Positive broad-based employee actions were overtaken by negative actions in late March
After spiking in late March, S&P Composite 1500 corporate actions remained steady in April (>50% of actions) and slowed in May
2
Sample as of June 5, 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
Tota
l W
eekly
Action
s
Executive Pay Reductions
Board Pay Reductions
Negative Broad-basedEmployee Actions
Positive Broad-basedEmployee Actions
Shareholder Actions
Across the three indices, 568 companies have announced compensation and human capital actions. Nearly half of S&P 500 companies have acted in response to COVID-19
3
Sample as of June 5, 2020
Companies Taking Action in Response to COVID-19
229
143
196
46%
36%
33%
0%
10%
20%
30%
40%
50%
0
50
100
150
200
250
S&P 500 (LargeCap) S&P MidCap 400 S&P SmallCap 600
% o
f In
dex C
om
panie
s
# o
f C
om
panie
s
# of Index Companies % of Index Companies
The stock market is improving, but companies that have reported actions still have significant market cap declines. Smaller companies have fared less well throughout the crisis
4
Sample as of June 5, 2020
Report Sample vs. Overall Index Market Cap Decline
Jan. 1 - Mar 31
Report Sample vs. Overall Index Market Cap Decline
Jan. 1 – May 29
-4%
-8%-11%
-32%
-44%
-52%
S&P 500(Large Cap)
S&P MidCap400
S&P SmallCap600
4% 3% 2%
-19%
-29%
-39%
S&P 500(Large Cap)
S&P MidCap400
S&P SmallCap600
S&P Indices
Companies in S&P Indices that Reported Actions
The consumer discretionary and industrials sectors acted early and on a sustained basis
5
Sample as of June 5, 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
0
100
200
300
400
Mar 2 Mar 9 Mar 16 Mar 23 Mar 30 Apr 6 Apr 13 Apr 20 Apr 27 May 4 May 11 May 18 May 25 Jun 1
To
tal W
eekly
Action
s
Federal Reserve Cuts Interest
Rates by Half A Percentage
Point
CEO pay cuts were made by almost one in four firms, while executive pay cuts were made by one in five. Large- and mid-cap companies have been slightly 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.
6
Sample as of June 5, 2020
21% (n=106)
19% (n=97)
15% (n=76)
25% (n=98)
21% (n=85)
16% (n=62)
24% (n=141)
21% (n=126)
20% (n=120)
Executives: Reduced CEO Base Salary
Executives: Reduced Other Executive Base Salary
Board of Directors: Reduced PayS&P 500 (Large Cap)
S&P MidCap 400
S&P SmallCap 600
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
7
Sample as of June 5, 2020
Number of Companies Reducing
CEO Salary Only, Bonus Only or Both by Index
Reduced Only CEO Bonus
(n=1) 1%
Reduced CEO Salary
& Bonus (n=11) 11%
Reduced Only CEO Salary (n=87) 88%
S&P MidCap 400
Reduced Only CEO Bonus
(n=3) 2%
Reduced CEO Salary & Bonus
(n=7) 5%
Reduced Only CEO Salary (n=134) 93%
S&P SmallCap 600
Reduced Only CEO Bonus
(n=3) 3%
Reduced CEO Salary & Bonus
(n=7) 6%
Reduced Only CEO Salary (n=99) 91%
S&P 500 (Large Cap)
The median CEO salary cut is 50% in large- and mid-cap companies, and 33% in small-cap firms. Other executive salary cuts are made on a graduated scale, with typical cuts at 20% to 25%
8
Sample as of June 5, 2020
Disclosed CEO Salary Reduction
Among Those Reducing
Disclosed Executive Salary Reduction
Among Those Reducing
21%
9%
27%
9%
16%
4%
14%
21%
2%
28%
9%
16%
1%
23%
14%
2%
20%
11%
17%
5%
31%
Not Defined
Under 20%
20% - 29%
30% - 49%
50%
51% - 99%
Forfeit 100%of Salary
S&P 500(Large Cap) (n=106)
S&P MidCap 400 (n=98)
S&P SmallCap 600 (n=141)
27%
24%
23%
13%
10%
2%
1%
27%
21%
29%
12%
10%
0%
1%
16%
12%
43%
6%
11%
5%
5%
Not Defined
Under 20%
20% - 29%
30% - 49%
50%
51% - 99%
Forfeit 100%of Salary
S&P 500(Large Cap) (n=97)
S&P MidCap 400 (n=84)
S&P SmallCap 600 (n=126)
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 June 5, 2020
Amount and Duration of Cuts to Board of Director Cash Retainers by Index
S&P 500 Disclosed Pay Reduction (n=76)
Duration Prevalence 100% 51%-100% 50% <50% Not Defined
Balance of 2020 21 8 0 4 7 2
4 to 6 Months 13 8 0 1 4 0
1 to 3 Months 14 1 0 4 7 2
Duration of Crisis/Not Defined 28 9 0 3 8 8
Total 76 26 0 12 26 12
S&P 400 Disclosed Pay Reduction (n=62)
Duration Prevalence 100% 51%-100% 50% <50% Not Defined
Balance of 2020 13 3 0 5 4 1
4 to 6 Months 4 0 0 1 3 0
1 to 3 Months 13 6 0 0 7 0
Duration of Crisis/Not Defined 32 7 0 4 9 12
Total 62 16 0 10 23 13
S&P 600 Disclosed Pay Reduction (n=120)
Duration Prevalence 100% 51%-100% 50% <50% Not Defined
Balance of 2020 20 3 0 1 13 3
4 to 6 Months 7 0 0 1 4 2
1 to 3 Months 13 5 0 3 4 1
Duration of Crisis/Not Defined 80 19 1 11 33 16
Total 120 27 1 16 54 22
The prevalence of adverse broad-based actions spans the three indices, with furloughs and reduced pay being most common
S&P 500
(Large Cap)
S&P MidCap
400
S&P SmallCap
600
Total companies taking adverse actions 20% (n = 102) 19% (n = 75) 19% (n = 124)
Furlough of employees 15% 11% 14%
Reduced pay 8% 10% 12%
Reduced workforce 6% 5% 5%
Suspended raises and/or bonuses 4% 5% 4%
Suspended 401(k) match 2% 3% 4%
Broad-Based Adverse Employment Actions
Because of COVID-19
Sample as of June 5, 2020
10
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”
11
Sample as of June 5, 2020
Prevalence of Adverse Broad-Based Actions
at Companies that Cut CEO Pay
15%
13%
17%
51%
50%
76%
14%
16%
16%
39%
42%
69%
9%
14%
21%
34%
51%
72%
Suspended 401(k) Match
Suspended Raises and/or Bonuses
Reduced Workforce
Reduced Pay
Furlough of Employees
Any Adverse Broad-Based Actions
S&P 500 (Large Cap)(n=106)
S&P MidCap 400(n=98)
S&P SmallCap 600(n=141)
CEO Salary Reduction
Large firms are 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 21% (n = 105) 10% (n = 40) 3% (n = 20)
Expanded benefits programs 12% 5% 2%
Guaranteed pay continuity 8% 4% 2%
Additional pay for on-site employees 7% 2% 0%
One-time bonus 6% 2% 0%
Expanded workforce 3% 1% 0%
Broad-Based Positive Employment Actions
Because of COVID-19
Sample as of June 5, 2020
12
Note: Expanded benefits include actions such as additional paid time off and paid medical coverage for COVID-19
What are Companies Doing Right Now?S&P 500 (Large Cap) (n=500)
14
Po
sitiv
e A
ctio
nN
ega
tive
Actio
n
Sample as of June 5, 2020
21%
19%
15%
2%
2%
1%
2%
15%
8%
6%
4%
2%
12%
8%
7%
6%
3%
4%
10%
8%
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: Additional Payments for On-Site Employees
Non-Executives: One-Time Bonus
Expanded Workforce
Other
Suspended Buyback Program
Suspended or Reduced Dividend Payments
Delay of Annual Meeting
Exe
cu
tive
s /
BO
DB
roa
d-B
ase
d E
mp
loye
es
Sha
reh
old
er
25%
21%
16%
3%
2%
2%
1%
11%
10%
5%
5%
4%
5%
4%
2%
2%
1%
2%
10%
6%
0%
Executives: Reduced CEO Base Salary
Executives: Reduced Other Executive Base Salary
Board of Directors: Reduced Pay
Executives: Reduced CEO Incentive Compensation
Executives: Reduced Executive Chairman Pay
Executives: Reduced Other Executive Incentive
Executives: Suspended Raises and/or Bonuses
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: Additional Payments for On-Site Employees
Non-Executives: One-Time Bonus
Expanded Workforce
Other
Suspended or Reduced Dividend Payments
Suspended Buyback Program
Delay of Annual Meeting
Exe
cu
tive
s /
BO
DB
roa
d-B
ase
d E
mp
loye
es
Sha
reh
old
er
What are Companies Doing Right Now?S&P MidCap 400 (n=400)
15
Po
sitiv
e A
ctio
nN
ega
tive
Actio
n
Sample as of June 5, 2020
What are Companies Doing Right Now?S&P SmallCap 600 (n=600)
16
Po
sitiv
e A
ctio
nN
ega
tive
Actio
n
Sample as of June 5, 2020
24%
21%
20%
3%
2%
2%
1%
14%
12%
5%
4%
4%
2%
2%
0%
0%
0%
2%
10%
6%
0%
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: Additional Payments for On-Site Employees
Non-Executives: One-Time Bonus
Expanded Workforce
Other
Suspended or Reduced Dividend Payments
Suspended Buyback Program
Delay of Annual Meeting
Exe
cu
tive
s /
BO
DB
roa
d-B
ase
d E
mp
loye
es
Sha
reh
old
er
COVID-19 Actions by Industry (Reconciliation of Industry and Industry Sector on Next Page)
17
Sample as of June 5, 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
150
118
106 105
92
81 80 7974
65
5955
4439
35
24
Capital Goods42%
Real Estate33%
Health Care39%
Banks34%
Materials21%
Retailing78%
Energy48%
Software &Svs.29%
IT30%
Financials26%
Cons. Dur.58%
Cons. Svs.80%
Comm. &Prof. Svs.
43%
Media49%
Transportation63%
Auto79%
63
39 4136
19
63
38
23 2217
3444
19 19 22 19
S&P Indices
Companies in S&P Indices that Reported Actions
Sector Breakdown by Industry
18
Sample as of June 5, 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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