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How Meaningful are CEO Pay Cuts?

Companies across a wide range of industries have decided to slash CEO and executive pay amid the COVID-19 crisis, with some top leaders seeing their pay reduced from 10% all the way down to zero.

The COVID-19 crisis has led to unprecedented job losses. Since mid-March, roughly 50 million Americans have filed for unemployment benefits. A recent survey found that almost a third of companies cut employee pay, including for those at the executive or senior level. Of those companies that cut pay, more than half reported the cuts allowed them to avoid layoffs.

But when companies are landing on the specific percentage of executive pay they’re cutting, it’s not an exact science.

Beth Florin, a managing director at the executive compensation consulting firm Pearl Meyer, echoed that.

“I’m not quite sure there’s a formula that says, ‘Well, if we do this, then we can keep X employees,’” Florin said. “I think it is more of a solidarity, a fairness issue internally, on how you’re treating all levels of the organization. Everyone at every layer is going to bear the brunt of this. And we’re not going to put the brunt of it on our core workforce. We have to take our hit, too.”

Jan Koors, who also works at Pearl Meyer as a senior managing director, said from the company’s perspective, they might not see some workers as necessary if there’s a decline in demand.

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