COVID-19’s Impact on Executive Compensation

By Bertha Masuda and Margaret Engel


COVID-19 Executive Compensation Online Article

As state governors issue lockdown and shelter-in-place orders across the country to slow the spread of the Coronavirus Disease 2019 (COVID-19) pandemic, layoffs and furloughs have become commonplace. The hardest-hit industries so far are consumer-facing businesses such as airline, retail, hospitality, and entertainment companies.

As the economy slows, some companies are experiencing sharp declines in revenue, quickly eroding available cash.

Generally, larger companies have been better equipped to protect their employees since they enjoy stronger cash reserves and readier access to credit. Additionally, certain essential sectors, such as grocery, pharmaceuticals, and banking, have seen increased demand. Walmart,, Target Corp., JPMorgan Chase & Co., and others are actively hiring, with thousands of jobs open so that these businesses can continue to operate their stores and distribution centers, bringing essential goods to millions of people.

These companies are actively raising hourly wages for service employees and providing additional cash bonuses as a form of “battle” pay: For example, Walmart’s full-time and part-time hourly store employees will receive a special bonus of $300 and $150, respectively, among a host of other support. As another example, JPMorgan is giving a one-time bonus of $1,000 to employees staffing branches or call centers who make less than $60,000 per year.

Boards can and should get involved in issues related to workforce recruitment, retention, and safety during this crisis. Addressing such issues at the board level can help ensure business continuity and mitigate financial and talent risks.

For executives, some changes in pay have been drastic, and how boards handle executive compensation through this crisis can draw either praise or scorn. The following sections look at some key trends in this arena, coupled with predictions for what’s to come, to help boards make more informed decisions.

Salary Reductions

For cash-strapped businesses, salary-reduction plans and other measures intended to preserve cash are being announced daily. CEOs in the airline industry forfeited salaries early on, given the expected need for government relief and employee furloughs and layoffs. Here are several examples of salary reduction plans:

Delta Air Lines’ CEO was one of the first chief executives to reduce his compensation, forgoing his salary for the next six months. The board is also not taking compensation for six months. Other officers and managing directors will take salary reductions of 50 percent and 25 percent, respectively.

L Brands’ salaries for senior vice presidents and above will be reduced by 20 percent. Its board will receive no cash compensation, as the company expects to furlough employees who cannot work from home or do not support the online business.

Marriott International’s chair and CEO are both forgoing salaries and the other executive team members are taking a 50 percent salary reduction as the company is furloughing two-thirds of its US and global corporate staff and tens of thousands of other hotel staff.

General Motors Co.’s senior management salaries will be reduced by 25 percent to 30 percent. Salaried employees will have 20 percent of their pay deferred through the first quarter of 2021.

Annual Bonuses for 2019 and 2020

For most calendar-year companies, executive and management 2019 annual incentives were approved according to the original schedule (typically in February). At that time, economic disruption due to COVID-19 was centered around China. Compensation Advisory Partners’ (CAP’s) research on early proxy filers indicates that most US companies had solid results in 2019.

Over the last month, COVID-19 has reached pandemic proportions, causing government-mandated shutdowns. Companies with fiscal years ending in the first or second quarter of 2020 are experiencing significant economic pressure. In particular, companies that have experienced revenue and profitability drying up are reducing, delaying, or cancelling bonus payments to preserve cash.

In 2020, goal-setting has become a significant challenge. Retailers that have closed their stores, airlines flying empty flights, and companies experiencing supply chain disruptions are facing huge losses in the coming quarter. At this point, it’s impossible to say when these businesses will be able to come back online in a meaningful way. Even when COVID-19 is contained, the US economic recovery could be delayed if the recoveries in China, Hong Kong, and South Korea are early indicators.

As a result, CAP predicts that companies will rely heavily on board discretion this year to make judgments on whether bonus plans will be funded in whole, in part, or at all. Discretion can be handled by creating a smaller fallback bonus pool if targets are not met or by defining a broad list of performance criteria to consider at year-end.

Equity Grants in 2020

Companies making annual equity grants between February and April also face challenges. Many companies are experiencing extreme swings, both up and down, in stock price from day to day. In addition, performance-based grants have come under pressure given challenges to setting meaningful financial targets. Reactions have varied, and no one-size-fits-all approach has come to the forefront.

Certainly, equity remains a valuable tool right now to replace or offset cuts in cash compensation, provide hope for a meaningful upside as we ride out the public health and economic crises, and motivate and retain talent. Normal practice at public companies is to define equity award guidelines as a dollar value or a percentage of salary, with the number of shares or stock options issued dependent on the fair market value of the stock on the date of grant. Our client experience indicates that many companies are continuing their normal practices for equity grants.

But particularly in cases where employees are facing layoffs, furloughs, and salary cuts, most management teams are sensitive to avoiding any appearance of enjoying a windfall from grants of large numbers of shares due to share price declines. Share availability within existing equity plans also constrains the ability of some companies to continue normal grant practices. In these instances, CAP has seen companies cut back equity award guidelines or adopt a multiday average stock price to determine the number of shares granted.

Companies have also granted options and restricted stock units but delayed grants of performance-based equity since credible goals cannot be established now. Others have delayed grants altogether and increased the use of awards with time-based vesting to avoid setting performance targets that become irrelevant as the crisis deepens.


Companies receiving financial aid under the CARES Act will need to structure executive compensation to stay within the defined limits of total compensation (defined as “salary, bonuses, awards of stock and other financial benefits” in Section 4004).

The act establishes the following pay restrictions for officers or employees of businesses receiving financial aid and uses calendar year 2019 pay for these employees as a baseline:

  • For those whose total compensation exceeded $425,000 in 2019, the total compensation limit will be equal to the total compensation received by the individual in 2019, or there will be a limit on severance pay or termination benefits of two times the total compensation received in 2019.

  • For those whose total compensation exceeded $3 million in 2019, the total compensation limit will be $3 million and 50 percent of total compensation over $3 million received in 2019.

As this crisis continues, CAP expects companies to take necessary actions to ensure business continuity. As companies pivot, boards should check that their companies’ pay philosophy, pay levels, and incentive plans are aligned with their organizations’ direction and objectives. Oversight is especially important if companies decide to take federal aid. Further, CAP expects additional guidance on executive compensation from proxy advisory services. As a result, CAP recommends that boards keep talent and compensation topics as standing agenda items throughout the rest of the year.

Bertha Masuda, a partner at Compensation Advisory Partners, advises compensation committees and boards on their companies’ most pressing compensation issues, including annual and long-term incentive plan design and determination.

Margaret Engel
Margaret Engel is a partner at Compensation Advisory Partners, specialize in developing innovative and practical compensation solutions, with a particular expertise in short- and long-term incentive plan design and implementation.