Give the Boss $10 Million or They're Out of Here


Top executives are accustomed to receiving hefty bonuses when they join a new company and large severance when it’s time to go. Lately they’ve been getting lots of money just to stay put.

Citing the need to retain top talent, Norwegian Cruise Line Holdings Ltd. and AMC Entertainment Holdings Inc. are part of a group of large companies that have offered bosses big retention bonuses recently. Hilton Worldwide Holdings Inc., Cineworld Group Plc and others have modified executive stock plans so their top employees aren’t tempted to hot foot it.

Reasonable or not, such rewards look bad during a period when ordinary workers have faced massive job insecurity and governments have propped up the economy. It cements the impression that, fair weather or foul, executives can’t lose; and it could presage a frosty shareholder meeting season for big businesses. Companies will “need to explain how such awards do not merely insulate executives from lower pay,” proxy advisor Institutional Shareholder Services warns.

In fairness, top managers bore no responsibility for the pandemic and they’ve had to work hard to protect employee health, reinforce supply chains and strengthen balance sheets. With the virus still undefeated, corporate boards are willing to pay bosses handsomely to ensure continuity. Meanwhile, many economies have rebounded quickly, giving managers leverage in pay talks as there are opportunities elsewhere.

Despite top executives giving up some pay when the pandemic began, their overall compensation has remained very high.

I doubt anyone regrets the $1 million bonus Moderna Inc. gave Chief Medical Officer Tal Zaks last year so he’d continue to oversee Covid vaccine work. It’s more problematic, though, when companies whose performance has worsened pay bosses so they don’t cut and run. As with other U.S. companies that filed for Chapter 11 bankruptcy last year, car rental group Hertz Global Holdings Inc. promised executives millions of dollars in bonuses to stick around. (Hertz changed tack after a bankruptcy judge branded the idea “offensive”.)

American movie-theater chain AMC awarded managers $17.5 million of special incentive bonuses for 2020 despite reporting a $4.6 billion annual loss. A significant increase in management resignations and a “substantial decrease in the value of stock-related compensation” were among the explanations. In a year in which thousands of his staff were furloughed, Chief Executive Officer Adam Aron’s pay doubled to $20.9 million. ISS recommends shareholders reject AMC’s compensation plan at next week’s annual meeting.

U.K. peer Cineworld awarded two executives tens of millions of pounds of incentives linked to a share-price recovery. The company’s existing long-term pay plan was “unlikely to deliver any significant value” or provide effective retention, the company said in a January filing. Shareholders approved the new plan despite opponents saying it was excessive.

To persuade Frank Del Rio to sign on for another three years as CEO of Norwegian Cruise Line, the ailing cruise operator offered him $8.8 million in inducement bonuses and restricted stock awards. He was also paid $10.3 million for the severance benefits guaranteed under his previous employment agreement. Meanwhile, his $3.6 million annual bonus was changed from an earnings-related target to one that incentivized a reduction in cash burn. His total compensation therefore doubled to $36.4 million last year, which is pretty punchy considering the group’s full-year loss was $4 billion. “It was critical to maintain our President and Chief Executive Officer’s leadership during this tumultuous time,” the company said

General Electric Co boss Larry Culp voluntarily forfeited his 2020 annual bonus. However, thanks to a revised long-term share incentive plan to help guarantee his continuing employment, Culp could eventually receive a stock payout worth up to $230 million. “Securing Larry’s continued leadership was one of the most important steps that we could take during a period of great uncertainty,” GE explained.

Partial kudos also to Hilton’s boss Chris Nassetta for forgoing the profit-orientated portion of his cash bonus because the target wasn’t met. However, the board amended its long-term share plan because grants were projected to pay out at zero because of the pandemic. The projected zero payouts “impaired the awards’ ability to retain key talent,” the company said. Nassetta’s total compensation was still a hefty $20.1 million.   

Even healthier companies can expect resistance on these pay issues. Starbucks Corp.’s stockholders last month rejected a compensation plan that offers CEO Kevin Johnson a potential $50 million retention bonus (the vote was non-binding). British arms manufacturer BAE Systems Plc is also gearing up for a fight over awarding boss Charles Woodburn a 2 million-pound ($2.8 million) bump to convince him not to quit. BAE’s recent financial performance has been good but this hasn’t won over critics: “One-off pay awards to address retention concerns have frequently been shown to be ineffective,” ISS complained.

Designing a pay plan that keeps all stakeholders happy is difficult right now. If struggling companies are too stingy they’ll trigger an exodus. If they’re too generous, executives could pocket undeserved windfalls if the shares rebound. In the U.K. the trend for restricted share plans that aren’t tied as much to individual performance could mean executives get a bonus just for showing up. 

Corporate boards should reflect on how wider society will perceive very large pay in the current environment, particularly where the experience of ordinary workers and shareholders has been so different. “Pay to Stay” is a recipe for trouble.

Some of these examples were highlighted in New York Timesand Wall Street Journal analyses of executive pay.

AMC offered in this regulatory filing to justify these and other favorable pay changes.

This was to avoid discouraging him from extending his contract.

This is an adjusted figure. His reported annual compensation was an eye-popping$55.9 million, however this figure includesdouble-counting and accounting adjustments related to the stock award changes.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

©2021 Bloomberg L.P.

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