Are boards bending the rules on executive pay?
The top leaders of companies with the lowest-paid workers witnessed an increase in their executive pay for 2020. In contrast, their workers – many of whom were classified as essential – suffered pay cuts during the pandemic, new findings revealed.
A report, released by the Institute for Policy Studies, examined the pay gap between the CEOs and employees at S&P 500 companies with the lowest median wage for workers. The bottom 100 firms had a median pay of US$28,187 for employees, falling two per cent since 2019. However, their CEOs took home an average of $15.3m in 2020. The figure represents a 29% jump in their executive pay prior to the pandemic. Pay ratios widened to 830 to 1.
Read more: Is CEO pay shrinking?
Because of the headwinds companies faced in 2020, most of these organisations opted not to tie executive bonuses and stock grants to corporate or financial performance, and instead worked around the benchmarks used to reward CEOs. Some of these adjustments included: “lowering performance bars to help executives meet bonus targets, awarding special ‘retention’ bonuses, excluding poor second-quarter results from evaluations, and replacing performance-based pay with time-based awards”.
“Over half of America’s largest low-wage employers, we found, bent the rules to boost CEO pay last year – even as essential workers took the biggest risks to keep the economy running,” said Sarah Anderson and Sam Pizzigati, who wrote the analysis.
Read more: Are managers behind pay inequality?
Even at companies struggling through the crisis, senior leaders saw hefty pay packages. “Sixteen firms ended 2020 in the red. This group of profit-losing, rule-bending corporations had the highest average CEO pay, at $17.5m,” the analysts said.
The report highlighted how this culture of pay inequality exacerbates racial and gender issues. “Because women and people of colour make up a large share of low-wage workers and a tiny share of corporate leaders, extreme CEO-worker pay divides increase gender and racial disparities,” the analysts said. “The pandemic has brutalised low-wage workers, particularly workers of colour. These employees suffered 2020’s highest job loss rates.”