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wsj.com-CEO Pay Surged in a Year of Upheaval and Leadership Challenges

CEO Pay Surged in a Year of Upheaval and Leadership
By Theo Francis and Kristin Broughton
April 11, 2021
Norwegian Cruise Line CEO Frank Del Rio’s pay doubled last year to $36.4
million, in part with bonuses tied to a contract extension.
Photo: Christopher Goodney/Bloomberg News
CEO pay surged in 2020, a year of historic business upheaval, a wrenching labor market for
many workers and unprecedented challenges for many leaders.
Median pay for the chief executives of more than 300 of the biggest U.S. public companies
reached $13.7 million last year, up from $12.8 million for the same companies a year earlier
and on track for a record, according to a Wall Street Journal analysis.
Pay kept climbing in 2020 as some companies moved performance targets or modified pay
structures in response to the Covid-19 pandemic and accompanying economic pain. Salary
cuts CEOs took at the depths of the crisis had little effect. The stock market’s rebound
boosted what top executives took home because much of their compensation comes in the
form of equity.
In some cases, investors have responded by withholding support for company pay practices
in annual advisory votes, increasing pressure on corporate boards. With the annual-meeting
season only just beginning—80% of the S&P 500 have yet to hold their votes, according to
pay data firm Equilar—shareholders have given a thumbs down to pay arrangements at a
dozen big companies, including Starbucks Corp. and Walgreens Boots Alliance Inc.
“I don’t think we’ve ever seen anything like this before in
terms of the number of changes we’ve seen in incentive
plans” during the pandemic, said Shaun Bisman, a pay and
corporate-governance consultant at Compensation Advisory
Partners in New York.
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Pay rose for 206 of the 322 CEOs in the Journal’s analysis, which uses data for S&P 500
companies from research firm MyLogIQ. The median raise was nearly 15%. The Journal uses
figures reported by companies in their regulatory filings, which value equity awards on the
date granted.
The leaders of Exxon Mobil Corp. , ad giant Omnicom Group Inc. and Intel Corp. made less
in 2020 than they did in 2019. Those companies generated total shareholder returns, a
measure of share-price changes and dividends, between minus 36% and minus 15% in 2020.
Compensation jumped for some executives at battered companies. At Norwegian Cruise Line
Holdings Ltd. —which recorded a $4 billion loss last year after sailings stopped and revenue
fell 80%—CEO Frank Del Rio’s pay doubled to $36.4 million, in part with bonuses tied to a
three-year contract extension, according to the company’s proxy.
A Norwegian Cruise spokesman said Mr. Del Rio’s pay
included amounts related to the effects of the pandemic, a
U.S. government decision to halt travel to Cuba and an
employment-agreement extension.
“We believe these changes were in the best interests of the
company and secured Mr. Del Rio’s continued invaluable
expertise,” the spokesman said. “Our management team took
quick, decisive action to reduce costs, conserve cash, raise
capital” and is executing a plan to relaunch its ships.
As the pandemic unfolded and whole industries slowed or
nearly froze, many CEOs gave up some or all of their salaries,
often to great fanfare. But salary makes up less than 10% of
total compensation for most big-company CEOs. The equity
awards and cash bonuses that make up the bulk of the rest
have generally remained high, the Journal analysis shows.
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The biggest pay packages reported so far went to leaders who
received special stock awards during the crisis. Chad
Richison, founder and CEO of Paycom Software Inc.,
received compensation valued by-----the company
at $211
-- ----million, including restricted shares. Larry Culp, the CEO of General Electric Co. , received
compensation valued by-------the company----at $73.2 million tied to a contract extension and new
performance targets.
At Aramark, the institutional catering and uniform provider, the board bumped executives’
annual incentive payments up to 40% of initial targets instead of the 10% that pay-program
formulas would have dictated. Aramark also made a special one-time options grant and
adjusted performance targets for a three-year award established in 2018.
For CEO John Zillmer, 2020 pay totaled $27.1 million, instead of closer to $11 million
without the changes. Mr. Zillmer gave up 25% of his $1.3 million base salary from early April
through Oct. 2.
In its proxy statement, Aramark said some changes were meant to retain executives and
other employees receiving stock compensation, and to recognize the “extraordinary
circumstances” of the pandemic. The company said the executives aren’t expected to receive
annual equity awards in 2021, and the additional options will only provide value if the
company’s share price rises. Aramark didn’t respond to requests for comment.
Most companies didn’t modify annual or long-term incentive plans, but those hard-hit by the
pandemic were more likely to, consulting firm Pay Governance found in an analysis of S&P
1500 companies filing early proxy statements. When boards intervened to adjust calculated
payouts, they were more likely to increase them than lower them, Pay Governance found.
An Aramark employee worked a Boston Red Sox-Philadelphia Phillies game at
Fenway Park last year.
Photo: cj gunther/EPA/Shutterstock
“We’ve seen significant uptick on things that typically drive investor concern,” said Julian
Hamud, senior director of executive compensation research at Glass Lewis & Co., a proxy
advisory firm. He said investors are displeased with boards issuing retention awards and
some Covid-19-related changes to executive pay plans.
Last month, investors of aerospace-parts maker TransDigm Group Inc. voted 57% of their
shares against the company’s pay program. TransDigm allowed vesting for option awards
made during the fiscal year even though the performance criteria wouldn’t be met, benefiting
85 employees, including directors and some top executives.
In its proxy, TransDigm said directors concluded existing performance criteria weren’t
attainable, cited good performance ahead of the pandemic, and said not making the change
would have put some employees at a disadvantage, because the company awards equity every
other year.
TransDigm executives also gave up pay, including CEO Kevin Stein who turned down $1.08
million in cash bonus and about $117,000 in salary. In total, Mr. Stein received $22.1 million
in 2020 compensation, up from $13.1 million the year before. TransDigm said Mr. Stein
didn’t benefit from the special 2020 option vesting.
“TransDigm’s executive compensation plans, along with the board’s decision to vest certain
options in 2020, are designed to incentivize leaders to act like business owners and align
their interests with shareholders over the long term,” said Jaimie Stemen, the company’s
head of investor relations.
About 1 in 6 companies holding shareholder votes since Sept. 1 have gotten less than
70% support for say-on-pay votes, according to an analysis of S&P 500 companies by Equilar.
Among the same companies last year, by contrast, about 1 in 12 had such stiff opposition.
Although only advisory, a poor showing in a say-on-pay vote often prompts boards to
restructure pay packages—or more. About a quarter of boards replace the compensationcommittee chairman and nearly half replace at least one committee member after losing a
vote, consulting firm Willis Towers Watson found.
Getting 70% to 80% shareholder support for a pay package is worrisome for boards, said Don
Delves, executive-pay-practice leader for Willis Towers Watson. “Below 70% they consider
almost like a failure.”
Write to Theo Francis at theo.francis@wsj.com and Kristin Broughton at
Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved.
Appeared in the April 12, 2021, print edition as 'CEO Pay Climbs In Year Of Vast Upheaval.'