Pay Cut Amid Coronavirus: Only Employees, Not Directors, Face The Music

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The COVID-19 is truly on its way to purge all companies worldwide based on the survival of the fittest. Amid these testing times, many companies have chosen to lay off, furlough or significantly cut the pay of their employees so that they can survive through this period of an extreme business slowdown. However, a recent survey has shockingly revealed how a majority of companies are still moving forward with paying their directors as planned.

The conclusion is derived from a latest study done by Pearl Meyer, which is an executive compensation consultancy. According to the study, a whopping 55% of 315 organizations which were surveyed will not be making any changes to their director’s compensation packages.

On the flip side of things, only 19% of the companies, however, reported that they have temporarily made pay cuts in their directors’ pay. Surprisingly, 17% of these companies are planning to move ahead with the proposed pay increases they charted out for their directors before the COVID-19 situation.

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The findings have surfaced at the time when most of the companies are working on the revised strategy to gear up for the possible recession knocking the door due to the Coronavirus outbreak globally. Employees are staring at the massive pink slips most of the companies are working on to cut their financial expenditures.

In fact, 14% of the companies, which participated in the study, said that they are now further evaluating the pay structure of their director’s compensation because of the effect of the coronavirus outbreak on their businesses.

Jannice Koors who is the Senior Managing Director and Western Region President at Pearl Meyer, in a statement, said that their survey found that in industries which were the most impacted by the COVID-19 such as energy, transportation and hospitality, director pay cuts were seemingly more severe. She also said that this severity in the pay cut of directors can very well transcend to other industries as well if the economic uncertainty and fallout continues as it seems it would.

Apart from this, she added that it is high time for companies to plan for the future and the board of directors of most companies, at all costs, need to acknowledge the economic hardship felt by their key stakeholders.

Pay cut of employees

The survey also found out that in response to the COVID-19 outbreak, 40% of organisation chose to cut the pay of their directors, albeit not sure about how long these adjustments will be continued in the future.

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38% of such companies said that they feel these adjustments will be continuing for at least three months but definitely less than one year. 70% of the respondents, because of the uncertainty associated with this coronavirus pandemic, said that they are still unclear whether this adjustment period will need to be further extended or not. It’s clear that companies are still not sure about the aftermath of Coronavirus. Companies have started working on a long-term strategy to stay afloat during the possible upcoming recession.

But that’s not all the surprising highlights of the study; nearly half or 48% of companies were found out to have no plans to make any changes whatsoever to their annual director equity grant value or methodology by the survey.

Now among the companies that do intend to adjust this year’s equity grants for directors, the most common approach that they are taking is modifying the share price used to determine the number of shares which stands at 9% or decreasing the equity grant by the same amount as the annual cash retainer which stands at 4% only. Also, 20% of the respondents are still on the fence and haven’t yet decided if they will adjust the equity grants due to the COVID-19 situation.

The sample size this survey took into consideration was 315 companies among which 230 are publicly traded companies, 71 ar private firms and lastly, 14 are not-for-profit organisations.

The information that this survey revealed is highly concerning. For companies to lay off employees at the very first sign of financial difficulty whilst still paying their top executives such as directors regularly, shows that they lack empathy as an organisation. Most of the employees who are being laid off right now have dedicatedly served their organisations for years and helped it grow. Therefore this is truly very unfair to them. Also, in the long run, this type of company culture will definitely do much harm to these organisations. Therefore, it needs to be checked and corrected right away.

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