Companies Protect C-Suite Pay As Furloughed Workers Collect Unemployment: Report

The coronavirus pandemic stalled thousands of businesses across the U.S., sending desperate execs to the loan office and furloughed employees to the unemployment office.

Some companies are using their downtime to craft new compensation plans for executives — plans to mitigate hardship related to cuts made to multimillion-dollar salaries.

The State Of Affairs

In mid-May, the Bureau of Labor Statistics recorded 21.05 million continuing jobless claims, a slight improvement from the previous week’s 24.91 million. Some economists anticipate a second round of private sector layoffs timed with a decline in public sector aid.

At the start of the pandemic, the private sector tapped $350 billion in bank credit lines to reinforce balance sheets, prompting the Federal Reserve to buy $750 billion in corporate bonds to increase corporate access to less-expensive debt.

Many companies capitalized on the government’s move and secured bonds to repay bank lines. Reflecting on this environment, BlackRock Investment Institute forecasted “higher corporate credit defaults and downgrades” in its weekly commentary. Indeed, some companies have already been driven to bankruptcy even after pursuing cost-cutting measures.

The Corporate Response

With this backdrop, some companies are reshaping compensation plans to protect C-suite pay. New stock plans and payments are helping offset early cuts to multimillion-dollar base salaries.

Sonic Automotive Inc SAH cut or furloughed one third of its staff before replacing its executives’ performance-based share awards with stock options worth four times as much, according to Reuters.

Build-A-Bear Workshop, Inc BBW, Red Robin Gourmet Burgers, Inc. RRGB, Signet Jewelers Ltd. SIG, G-III Apparel Group, Ltd. GIII and Covia Holdings Corp CVIA were found to have taken similar actions.

Reuters identified another 75 companies considering increases to their executive compensation, including Uber Technologies Inc UBER, Hilton Worldwide Holdings Inc HLT, Sirius XM Holdings Inc SIRI and Thomson Reuters Corp TRI.

Many justified the strategy as critical for management retention, and one consultant firm corroborated this view.

“It’s critical to motivate the team and get through the crisis,” Yonat Assayag, partner at ClearBridge Compensation Group, told Reuters. “Through that lens, a lot of these decisions are very much aligned with shareholder interests.”

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