Corporate Compensation and Human Capital Actions in ......Eric Hosken, Melissa Burek, Bonnie Schindler and Whitney Cook Compensation Advisory Partners (CAP) is tracking COVID-19 actions

Corporate Compensation and Human Capital Actions in Response to COVID-19

Sample as of June 19, 2020

Eric Hosken, Melissa Burek, Bonnie Schindler and Whitney Cook

Compensation Advisory Partners (CAP) is tracking COVID-19 actions for the S&P 500 (500 largest U.S. public companies by market cap), S&P MidCap 400 and S&P SmallCap 600

▪ CAP is monitoring corporate public announcements to compile a database of pay actions taken in response to the COVID-19 pandemic:

• Compensation actions for chief executive officers (CEOs), other executives, boards of directors and employees

• Workforce reductions and expansions

• Changes in dividend policy and share buybacks (not covered in depth in this document)

▪ Corporate actions are made to help companies conserve cash, ensure employee safety, compensate front-line

employees for increased risk, and meet the changing demand for products and services caused by the pandemic

• The stimulus bill limits executive pay and returns to shareholders. Some actions may be to comply with the bill

▪ The three S&P indices were selected because 1) they allow for size comparisons and 2) they make up the S&P Composite 1500 index, which covers approximately 90 percent of the market capitalization of U.S. public companies

1


Company details, as well as more than 600 additional U.S. and non-U.S. companies,

are available on CAP’s website.

S&P 500 (Large Cap) S&P MidCap 400 S&P SmallCap 600 S&P Composite 1500

500 largest U.S. publicly

traded companies by

market capitalization

400 U.S. publicly traded

companies with a market

cap of $2.4 billion to $8.2

billion at the time of

addition to the index

600 U.S. publicly traded

companies with a market

cap of $600 million to $2.4

billion at the time of

addition to the index

U.S. publicly traded

companies in the S&P

500, 400 and 600 indices;

index covers 90 percent of

U.S. market cap

Companies must meet financial viability requirements for inclusion in all indices

https://www.capartners.com/covid-19-compensation-trends/

Executive and board pay cuts have been prevalent throughout the crisis. Positive broad-based employee actions were overtaken by negative actions in late March

After spiking in late March, S&P Composite 1500 corporate actions remained steady in April (~50% of actions) and slowed in May and June

2


Number of S&P 1500 Corporate Actions Because of COVID-19By Week of Announcement and Type of Action

Stimulus Bill

Signed

Mar 27

Stock Market

Worst Week

Mar 23

U.S. Declares National

EmergencyMar 13

U.S. Unemployment

Hits 14.7%

May 13

Tota

l W

eekly

Action

s

Executive Pay Reductions

Board Pay Reductions

Negative Broad-basedEmployee Actions

Positive Broad-basedEmployee Actions

Shareholder Actions

0

100

200

300

400

Mar 2 Mar 9 Mar 16 Mar 23 Mar 30 Apr 6 Apr 13 Apr 20 Apr 27 May 4 May 11 May 18 May 25 Jun 1 Jun 8 Jun 15

Tota

l W

eekly

Actions

Across the three indices, 613 companies have announced compensation and human capital actions. Nearly half of S&P 500 companies have acted in response to COVID-19

3


Companies Taking Action in Response to COVID-19

233

158

222

47%

40%

37%

0%

10%

20%

30%

40%

50%

0

50

100

150

200

250

S&P 500 (LargeCap) S&P MidCap 400 S&P SmallCap 600

% o

f In

dex C

om

panie

s

# o

f C

om

panie

s

# of Index Companies % of Index Companies

The stock market is improving, but companies that have reported actions still have significant market cap declines. Smaller companies have fared less well throughout the crisis

4


Companies in S&P Indices that Took Action vs.

Overall Index Market Cap Decline

Mar 1 - Mar 31

Companies in S&P Indices that Took Action vs.

Overall Index Market Cap Decline

Mar 1 – Jun 15

S&P Indices

Companies in S&P Indices that Reported Actions

2% 2% 1%

-26%

-41%

-45%

S&P 500(Large Cap)

S&P MidCap400

S&P SmallCap600

9% 11% 12%

-9%

-18%

-24%

S&P 500(Large Cap)

S&P MidCap400

S&P SmallCap600

The consumer discretionary and industrials sectors acted early and on a sustained basis

5


Oil Prices

Turn Negative

States Begin Closing

Nonessential Businesses

Note: Sector breakdown by industry group is detailed on page 18

Number of S&P 1500 Corporate Actions Because of COVID-19By Week of Announcement and Industry Sector

Airlines

Slash

Capacity

Communication Services

Consumer Discretionary

Consumer Staples

Energy

Financials

Health Care

Industrials

Information Technology

Materials

Real Estate

Utilities

Federal Reserve Cuts Interest

Rates by Half A Percentage

Point

0

100

200

300

400

Mar 2 Mar 9 Mar 16 Mar 23 Mar 30 Apr 6 Apr 13 Apr 20 Apr 27 May 4 May 11 May 18 May 25 Jun 1 Jun 8 Jun 15

To

tal W

eekly

Action

s

CEO pay cuts were made by almost one in four firms, while executive and board pay cuts were made by one in five. Large- and mid-cap companies have been less likely to cut board payCAP believes that some companies have refrained from cutting board pay because of the increase in the workload for the board and the need for management to have external advice. While S&P 600 companies have been more likely to cut director pay, the size of the pay cuts has been smaller.

6


S&P 500 (Large Cap)

S&P MidCap 400

S&P SmallCap 600

22% (n=111)

20% (n=101)

15% (n=77)

26% (n=103)

23% (n=91)

17% (n=69)

25% (n=152)

23% (n=135)

22% (n=131)

Executives: Reduced CEO Base Salary

Executives: Reduced Other Executive Base Salary

Board of Directors: Reduced Pay

CEO salary cuts are more common than bonus actions, but CAP expects many companies not to pay bonuses in 2020 or to increase discretion in bonus decisions

7


Number of Companies Reducing

CEO Salary Only, Bonus Only or Both by Index

Reduced Only CEO Bonus

(n=3) 3%

Reduced CEO Salary & Bonus

(n=9) 8%

Reduced Only CEO Salary (n=102) 90%

S&P 500 (Large Cap)


(n=2) 2%Reduced CEO

Salary & Bonus (n=14) 13%


S&P MidCap 400


(n=6) 4%

Reduced CEO Salary & Bonus

(n=8) 5%


S&P SmallCap 600

The median CEO salary cut is 50% in large- and mid-cap companies, and 40% in small-cap firms. Other executive salary cuts are made on a graduated scale, with typical cuts at 20% to 25%

8


Disclosed CEO Salary Reduction

Among Those Reducing

Disclosed Executive Salary Reduction

Among Those Reducing

30%

24%

21%

12%

10%

2%

1%

26%

21%

30%

12%

10%

0%

1%

19%

12%

42%

6%

11%

5%

5%

Not Defined

Under 20%

20% - 29%

30% - 49%

50%

51% - 99%

Forfeit 100%of Salary

S&P 500(Large Cap) (n=101)

S&P MidCap 400 (n=90)

S&P SmallCap 600 (n=134)

24%

8%

25%

9%

16%

5%

13%

21%

2%

27%

10%

18%

1%

21%

16%

3%

19%

11%

16%

4%

31%

Not Defined

Under 20%

20% - 29%

30% - 49%

50%

51% - 99%

Forfeit 100%of Salary

S&P 500(Large Cap) (n=111)

S&P MidCap 400 (n=103)

S&P SmallCap 600 (n=152)

S&P 500 (large cap) and S&P MidCap 400 companies cut director cash retainers by a median of 50%. S&P SmallCap 600 firms applied a lower 30% cut to retainers. The duration of cuts is typically not defined

9


Amount and Duration of Cuts to Board of Director Cash Retainers by Index

S&P 500 Disclosed Pay Reduction (n=77)

Duration Prevalence 100% 51%-100% 50% <50% Not Defined

Balance of 2020 21 8 0 4 7 2

4 to 6 Months 14 8 0 1 5 0

1 to 3 Months 14 1 0 4 7 2

Duration of Crisis/Not Defined 28 9 0 3 8 8

Total 77 26 0 12 27 12



Balance of 2020 14 3 0 6 4 1

4 to 6 Months 7 0 0 1 6 0

1 to 3 Months 15 7 0 1 7 0


Total 69 17 0 12 27 13



Balance of 2020 22 3 1 2 14 2

4 to 6 Months 7 0 0 1 4 2

1 to 3 Months 15 5 0 3 5 2


Total 131 27 2 18 56 28

The prevalence of adverse broad-based employment actions spans the three indices, with furloughs and reduced pay being most common

S&P 500

(Large Cap)

S&P MidCap

400

S&P SmallCap

600

Total companies taking adverse actions 22% (n = 110) 23% (n = 90) 26% (n = 158)

Furlough of employees 17% 17% 21%

Reduced pay 8% 11% 14%

Reduced workforce 7% 7% 6%

Suspended raises and/or bonuses 5% 6% 5%

Suspended 401(k) match 3% 4% 5%

Broad-Based Adverse Employment Actions

Because of COVID-19


10

Note: Furlough refers to a temporary unpaid leave for a certain length of time, while workforce reduction is a permanent action.

A cut in CEO pay is often coupled with actions that adversely affect the broader employee population to communicate that “we are in this together”

11


Prevalence of Adverse Broad-Based Actions

at Companies that Cut CEO Pay

16%

15%

19%

51%

64%

84%

16%

17%

19%

43%

51%

73%

10%

18%

21%

34%

58%

75%

Suspended 401(k) Match

Suspended Raises and/or Bonuses

Reduced Workforce

Reduced Pay

Furlough of Employees

Any Adverse Broad-Based Actions

CEO Salary Reduction

S&P 500 (Large Cap)(n=111)

S&P MidCap 400(n=103)

S&P SmallCap 600(n=152)

CEO Salary Reduction

Large firms are much more likely to take positive actions, such as expanded benefits and additional compensation for front-line employees, than smaller peers

S&P 500

(Large Cap)

S&P MidCap

400

S&P SmallCap

600

Total companies taking positive actions 22% (n = 109) 11% (n = 42) 4% (n = 26)

Expanded benefits programs 13% 5% 3%

Guaranteed pay continuity 8% 5% 2%

Additional pay for on-site employees 7% 2% 1%

One-time bonus 6% 2% 0%

Expanded workforce 3% 1% 0%

Broad-Based Positive Employment Actions

Because of COVID-19


12

Note: Expanded benefits include actions such as additional paid time off and paid medical coverage for COVID-19

Detailed Findings

What are Companies Doing Right Now?S&P 500 (Large Cap) (n=500)

14

Po

sitiv

e A

ctio

nN

ega

tive

Actio

n


22%

20%

15%

5%

2%

2%

2%

17%

8%

7%

5%

3%

13%

8%

7%

6%

3%

4%

10%

8%

1%




Executives: Suspended Raises and/or Bonuses

Executives: Reduced CEO Incentive Compensation

Executives: Reduced Other Executive Incentive

Executives: Reduced Executive Chairman Pay


Non-Executives: Reduced Pay

Reduced Workforce

Non-Executives: Suspended Raises and/or Bonuses


Expanded Benefits Programs

Non-Executives: Guaranteed Pay Continuity

Non-Executives: Additional Payments for On-Site Employees

Non-Executives: One-Time Bonus

Expanded Workforce

Other

Suspended Buyback Program

Suspended or Reduced Dividend Payments

Delay of Annual Meeting

Execu

tives / B

OD

Bro

ad-B

ased

Em

plo

ye

es

Sha

reh

old

er

What are Companies Doing Right Now?S&P MidCap 400 (n=400)

15

Po

sitiv

e A

ctio

nN

ega

tive

Actio

n


26%

23%

17%

5%

4%

3%

2%

17%

11%

7%

6%

4%

5%

5%

2%

2%

1%

3%

10%

7%

1%










Reduced Workforce







Expanded Workforce

Other




Execu

tives / B

OD

Bro

ad-B

ased

Em

plo

ye

es

Sha

reh

old

er

25%

23%

22%

6%

2%

2%

1%

21%

14%

6%

5%

5%

3%

2%

1%

0%

0%

2%

11%

7%

1%










Reduced Workforce







Expanded Workforce

Other




Execu

tives / B

OD

Bro

ad-B

ased

Em

plo

ye

es

Sha

reh

old

er

What are Companies Doing Right Now?S&P SmallCap 600 (n=600)

16

Po

sitiv

e A

ctio

nN

ega

tive

Actio

n


COVID-19 Actions by Industry (Reconciliation of Industry and Industry Sector on Next Page)

17


Number of Companies Taking Compensation and Human Capital Actions by Industry

vs. Number of S&P 1500 Companies in Each Industry

Notes:

- The capital goods sector, also known as industrials, includes manufacturing, aerospace and defense, engineering and construction. The consumer services sector refers to

services sold to individuals as opposed to organizations. Examples include auto maintenance and home security.

- Bar chart excludes industries with few compensation and human capital actions in response to COVID-19

S&P Indices

Companies in S&P Indices that Reported Actions150

118

107 105

92

81 80 79

73

65

5955

4439

35

24

Capital Goods47%

Real Estate36%

Health Care42%

Banks37%

Materials25%

Retailing79%

Energy50%

Software &Svs.29%

IT32%

Financials26%

Cons. Dur.59%

Cons. Svs.82%

Comm. & Prof.Svs.45%

Media56%

Transportation66%

Auto88%

70

42 4539

23

64

40

23 2317

3545

20 22 23 21

Sector Breakdown by Industry

18


Communication Services Media & Entertainment, Telecommunication Services

Consumer DiscretionaryAutomobiles & Components, Consumer Durables & Apparel,

Consumer Services, Retailing

Consumer StaplesHousehold & Personal Products, Food, Beverage & Tobacco,

Food & Staples Retailing

Energy Energy

Financials Banks, Diversified Financials, Insurance

HealthcareHealth Care Equipment & Services, Pharmaceuticals,

Biotechnology & Life Sciences

Information TechnologySemiconductors & Semiconductor Equipment, Software &

Services, Technology Hardware & Equipment

Materials Materials

Real Estate Real Estate

IndustrialsCapital Goods, Commercial & Professional Services,

Transportation

Utilities Utilities

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Corporate Compensation and Human Capital Actions in ......Eric Hosken, Melissa Burek, Bonnie Schindler and Whitney Cook Compensation Advisory Partners (CAP) is tracking COVID-19 actions