CEOs caught crying crocodile tears

During the pandemic, CEOs from major Australian companies announced significant pay cuts, declaring they were “sharing the pain”.

However, new research finds the announcement of COVID-19 related CEO pay cuts was in many cases merely symbolic – made to appease stakeholders such as staff, shareholders and government.

CEOs who announced pay cuts did decrease their base salary, however their cash bonuses or incentive pay was increased, so total pay remained largely unchanged, the research finds.

The study was based on CEO remuneration for the 2020 financial year for 252 Australian Securities Exchange (ASX) listed companies with a market capitalisation of over $100 million. Around a quarter of these companies publicly announced a CEO pay cut.

The study, just published in the peer-reviewed Pacific-Basin Finance Journal, was conducted by Associate Professor Anna Bedford, Professor Martin Bugeja, Dr Samir Ghannam and Dr Nelson Ma from the University of Technology Sydney (UTS) Business School.

It shows that companies that announced CEO pay cuts were also more likely to announce news that had a negative impact on stakeholders, such as staff cuts, downward earnings guidance or a suspension of dividends.

Our findings highlight the inequality between CEOs who occupy a privileged place in society, and the “average” person, many of whom lost their job during the pandemic.

Professor Martin Bugeja
UTS Business School

This suggests that pay cut announcements were used to alleviate stakeholder pressure. And it seems to be a tactic that worked, with a lower rate of shareholder dissent votes for these companies.

“CEO pay cut announcements did not lead to self-sacrifice by CEOs as originally expected by stakeholders, because compensation structures can be manipulated. Rather it seems they were a way to take the heat off negative news,” said Professor Martin Bugeja.

“Our findings highlight the inequality between CEOs who occupy a privileged place in society, and the “average” person, many of whom lost their job during the pandemic,” he said.

For example, retailer Harvey Norman engaged in staff layoffs while accepting millions in government Jobkeeper subsidies. Despite executives forgoing 20% of their salary for the last three months of the 2020 financial year, the chief executive received a $300,000 increase in pay compared to the prior year.

Companies that announced CEO pay cuts, but then paid higher CEO compensation overall, or increased dividends, along with taking Jobkeeper subsidies, did receive higher shareholder dissent votes against CEO remuneration, the study shows.

“This suggests that shareholders do hold managers accountable for actions that are perceived as particularly outrageous by the public,” said Associate Professor Bedford.

The research is likely to be of interest to government policy makers, regulators such as ASIC and APRA, trade unions, proxy advisers, board of directors and shareholders.

The findings suggest a need to rethink the way executive compensation pay is structured and monitored, including the need for better governance to improve accountability.