CINCINNATI — E.W. Scripps Co. CEO Adam Symson can attest: It’s not easy to cut your own pay.
But that didn’t keep him from doing it – twice – in response to the coronavirus pandemic.
The first cut came March 9, when Symson amended his employment contract to roll back a $200,000 raise that started with his new contract on Jan. 1. It was part of a company-wide cost-cutting effort that kept Scripps from having to lay off or furlough its roughly 6,000 employees.
"We suffered when a lot of our advertisers were closed for business,” Symson said. “They did what we did. They pulled back on expense.”
The second cut was announced in an April 13 filing with the U.S. Securities and Exchange Commission. Scripps, which owns WCPO, said Symson and 11 board members volunteered to reduce their cash compensation by 15% while seven other executives volunteered for a 10% cut in base salary. Together, the cuts saved about $500,000 that was donated to The Scripps Howard Foundation’s COVID-19 Employee Relief Fund for Scripps employees suffering financially because of the pandemic.
“Though their jobs weren’t being impacted at Scripps, they may have had spouses who were being impacted by job loss or incremental expenses associated with elder care or childcare,” Symson said. “So, we recognized the need was significant.”
Pay cuts in the corner office represent just one more way the global pandemic has impacted every facet of business life in the Tri-State, from the clearing of local office buildings in favor of work-at-home arrangements to the sudden closure of hotels, restaurants, casinos and entertainment venues. Although publicly traded companies are just one slice of the economy, they are some of Cincinnati’s largest employers – and the data they’re required to share with investors offers ready access to their world.
So, as part of our annual executive pay coverage, we spent some time analyzing how coronavirus pay cuts might impact local companies and the broader economy. In the short term, the cuts helped companies quickly cut expenses at a time of great uncertainty. The long-term impact, like the virus itself, is still an open question.
“Companies are rethinking a lot of different aspects of their overall benefit package, how they pay employees, how they support employees,” said Ric Marshall, executive director of environmental, social and governance research at New York -based MSGI Inc., an investment research firm.
“I think we’re going to see some big transitions. This is a challenging time, but it also presents a way for executives to be really creative and try to come up with some ways to do a better job at some of those things.”
‘Sharing in the pain’
Scripps is one of at least 572 publicly traded companies that announced pay cuts for top executives or board members in response to the coronavirus pandemic, according to a list compiled by The Conference Board, a New York -based nonprofit that conducts research on economics and business management. That list, last updated May 22, represents about 13% of the roughly 4,400 publicly traded companies in the U.S.
In addition to Scripps, the Greater Cincinnati-based companies announcing pay cuts so far include Batesville, Ind. -based hospital bed maker Hillenbrand Inc. and Atricure Inc., a Mason-based medical device company. Macy’s Inc., which announced in February that it will close its Cincinnati headquarters this year, announced pay cuts March 30.
The Conference Board also lists dozens of companies that aren’t based in Cincinnati, but employ lots of people here. Among them: GE Aviation, Marriott International and Hollywood Casino owner Penn National Gaming Inc. The list includes 71 health care companies, 55 retailers, 17 restaurant chains and 14 companies each from the hotel and media industries.
“The biggest reason we’re seeing companies make cuts to executive pay is to send the message that we’re sharing in the pain,” said Amit Batish, content manager for Equilar, a Redwood City, Calif.-based research firm that compiles data on executive pay. “And it is a means to kind of conserve cash.”
Pay cuts have been the steepest in companies hit hardest by the pandemic, according to a May 18 study by the New York-based compensation consulting firm Semler Brossy. The cuts typically involved a percentage reduction in the base salary of CEOs, with smaller percentage cuts for high-ranking executives and board members.
“Early disclosures were fewer in number and made by the most immediately impacted companies,” said the Semler-Brossy report. “At least half of CEO salary cuts announced in March were greater than 50%, whereas recent cuts have tended towards the 20 to 30% range.”
While the cuts are significant, they’re not likely to have a lasting impact on the wealth-building capacity of public-company executives. That’s because stock-based pay, which usually accounts for about half of total compensation, was not altered in the wave of COVID-19 cuts. Stock grants are long-term incentives that take years to vest. Companies estimate their future value when they’re issued, but the actual reward depends on future stock prices.
An I-Team analysis of local pay cuts found that 43 executives and board members will lose a combined $3.8 million from cuts announced so far. But as a group those cuts amount to less than 10 percent of the total compensation those executives received in 2019 from salary, bonuses, perks and stock awards.
“If you’re one of those workers that has been furloughed or took a big pay cut, while it does kind of help to see that your CEO is standing guard with you, it doesn’t really help the sting,” Batish said. “CEOs make a ton more than the median worker. Everyone knows that.”
Pay rose more quickly for those at the top
This is the 8th year that WCPO has analyzed pay practices at Cincinnati-based public companies, using annual disclosures made to investors in filings with the U.S. Securities and Exchange Commission. As in past years, the filings show companies continue to rely heavily on stock options and restricted-share grants to attract and retain their highest-ranked executives. These awards totaled $175 million for the 122 bosses listed in the searchable database at the end of this story. That’s 49% of all compensation for the group.
Here are some other key findings from the 2019 pay disclosures, which do not include the impact of COVID-19 pay cuts:
- Ninety-one local executives earned at least $1 million in total compensation in 2019, including 21 who earned more than $5 million. Those are comparable to 2013 results - which saw 92 pay plans over $1 million including 19 above $5 million - even though Cincinnati now has five fewer public companies and 39 fewer bosses on this year’s list.
- Median pay increased 11% to $2 million for the 105 executives for whom two years of compensation data was disclosed. That’s up from $1.6 million in median pay for Cincinnati bosses in 2013.
- The median pay of all employees except the CEO ranged from a low of $22,353 at Macy’s to a high of $112,580 at Atricure. Macy’s was the only local company where the median pay was below the federal poverty guideline for a family of four, an improvement over last year when Macy’s and Kroger ranked below that standard.
- Median pay increased at 14 of the 20 local companies that disclosed this figure in each of the last two years. But the CEO pay ratio increased at 12 of these companies, a sign that pay rose more quickly for those at the top. That bucks a national trend in which CEO pay ratios declined last year among 100 large companies tracked by Equilar.
Social activists have been watching pay-ratio disclosures as an indicator of wealth inequality in American society. But Equilar’s Amit Batish said investors are pushing for more disclosure from companies so they can better evaluate how a company’s pay practices compare to its rivals and whether they help a company achieve its business goals.
“Investors are certainly paying attention to the ratio and how companies are disclosing it,” Batish said. “That is only going to continue in light of the current crisis.”
Kroger’s pay pickle
A May 19 Tweet by U.S. Senator Bernie Sanders exemplifies the issue. The former Democratic presidential candidate called Kroger’s executive pay “disgusting” because CEO Rodney McMullen “got paid $21.1M last year as its workers struggle to get by on $26,000.”
Kroger declined an on camera interview for this story, but in an email response to the I-Team’s questions via email, Kroger’s Head of Financial and Investor Communications Sean Parker said the company has invested $700 million since March to reward and safeguard its employees during the coronavirus outbreak.
“We continuously evaluate compensation and benefits packages and have not reduced pay for named executives, directors or associates,” Parker said. “Our commitment is that we will continue to listen and be responsive to the needs of our associates, customers and communities and make adjustments where necessary.”
In many ways, Kroger can point to tangible progress on the pay front. Its median employee made $26,790 last year, up 8% from 2018. While McMullen made 789 times that amount, Kroger’s ratio is better than Walmart, where CEO Doug McMillon made 983 times its median worker’s pay of $22,484.
In addition, Kroger’s ratio is based on total compensation of $21.1 million, which includes a $7 million “change in pension value” that many experts do not count in total compensation because it’s an actuarial estimate, not an amount that’s actually paid to the executive for that year. WCPO has never included the pension figure in its annual compensation analysis. Without it, McMullen’s pay drops to $14.3 million, which is 533 times Kroger’s median employee.
Kroger Co. CEO Rodney McMullen
Those numbers are still big enough to raise an eyebrow at UFCW Local 75, which represents about 20,000 Kroger employees from Cincinnati to Toledo. President Kevin Garvey has been lobbying Kroger to continue paying his members a $2 hourly premium for staffing its stores during the coronavirus outbreak. The company compromised by ending what it called its “Hero Bonus” pay but replacing it with “Thank You Pay,” a one-time bonus of $400 to be paid in two installments by June 18.
“What the board of directors want to pay Mr. McMullen, that’s their business,” Garvey said. “My business is to make sure that money is shared with the members. We are doing everything we can to make sure that’s recognized. Now, if he wants to reduce his salary, that’s fantastic, because his reduction can go back to our members, right?”
Kroger is one of 19 local publicly traded companies that have not announced coronavirus pay cuts for executives, although its SEC filing says “certain aspects of our compensation programs may later be revised or modified once the compensation committee has had an opportunity to fully evaluate the impact of COVID-19 on our business.”
Will COVID-19 change future pay plans?
Cintas Corp. is another example of a company where COVID-19 pay changes might be disclosed in the future. The Mason-based supplier of uniforms and laundry services announced layoffs and furloughs in April and indicated at the time that “a reduction in executive compensation” would also take place. But it never disclosed details of the cuts.
Cintas operates on a fiscal year that ends May 31, so its 2019 compensation details were disclosed last July. When this year’s report is published, coronavirus pay cuts are likely to be included.
“Cintas has significantly reduced executive officer compensation, in addition to implementing a wage freeze, eliminating discretionary spending, and adjusting our workforce with a combination of reductions and furloughs,” said Cintas spokeswoman Michele Goret. “We will provide more detailed financial information on executive compensation reductions in a few months when we file our proxy report.”
Cincinnati Bell and Fifth Third Bank both said in prepared statements that they've increased the pay of employees who are potentially exposed to coronavirus because their jobs require interactions with customers and other employees. But neither company has imposed pay cuts on executives.
"To date, we have not had to implement temporary salary reductions, furloughs, or layoffs at any level of our company," Bell CEO Leigh Fox said in a statement to WCPO. "Should temporary salary reductions or furloughs become necessary, they would start at the executive level."
The companies that have disclosed COVID-19 pay cuts will be scrutinized by investors in the next year to make sure executives aren’t rewarded with extra-friendly stock grants that boost their total compensation beyond any amounts they lost this year.
“We might see companies request additional shares they can grant to their executives,” Batish said. “Whatever they do, they’re going to have to clearly disclose what their changes are and communicate why they made those changes.”
The corporate governance expert at MSGI Inc. agreed with Batish. Ric Marshall has been tracking public company pay practices for more than 20 years. He thinks institutional investors have gotten wise to the ways in which stock grants can be rigged to favor executives.
“It used to be that investors wanted everybody to tie their pay to performance so they wouldn’t get paid unless they performed well,” Marshall said. “But then companies figured out how to create these plans that were so complicated and had so many different angles and targets that they started getting paid well regardless of how they actually did. The big investors have begun to push back against that.”
Marshall thinks the pandemic will accelerate a trend toward simplifying stock awards so it’s easier to see a link between pay and performance.
“The scrutiny is going to be higher than ever,” he said. “Investors will be very quick to vote no on pay plans. Any hint of abuse will be severely punished by a negative vote. So, I think this is going to accelerate the change.”
A closer look at local coronavirus cuts
The I-Team estimated the value of coronavirus pay cuts by applying each company’s description of the cuts to 2019 compensation disclosures.
Macy’s, for example, told investors in an SEC filing on March 30 that its CEO and directors would receive “no cash compensation” after April 1. CEO Jeff Gennette received $2.3 million in salary and cash bonuses in 2019, or roughly $193,000 per month. Macy’s hasn’t said how long the pay cuts will last, but if they continue for the rest of 2020, Gennette would lose $1.7 million and 11 board members would lose an additional $909,000.
Hillenbrand CEO Joe Raver took a voluntary 30% reduction in his base salary starting April 1 that will last at least until Sept. 30, the company disclosed on April 4. That’ll cost Raver $126,627, based on his 2019 salary. Hillenbrand’s board members agreed to forego their scheduled cash compensation increase for 2020, but the amount wasn’t disclosed by the company.
Atricure announced pay cuts worth a combined $408,000 for the company’s five highest-paid officers and nine board members. The April 9 SEC filing said the cuts would last for six months. The I-Team's estimated total value of Scripps pay cuts was $566,714, based on the company's April 13 announcement.
Symson said the cuts evolved from the high level of uncertainty about the impact of the pandemic on advertisers.
“We’re an advertiser-supported business,” Symson said. “We’ve never experienced a complete shutdown of the economy as was prescribed by state governments across this country. We didn’t know how deep or how long that shutdown would go nor could we tell yet what the impact would be of that shutdown.”
So in early March, Symson said the company “tightened our belt as tight as possible,” freezing all merit-pay increases and hiring and rolling back pay hikes that had already been granted to the Scripps management team. That was followed by a second round of voluntary cuts in early April to fund an employee assistance fund.
Those cuts began with Symson and the senior management staff that directly reports to him but expanded when Scripps' 11 board members also volunteered for 15% cuts in their 2020 director fees and Chairman Rich Boehne agreed to “forego the remainder of his 2020 chairman fees,” which totaled $120,000 in 2019.
Scripps family members chipped in May 21 by announcing a $1.6 million gift to fund three initiatives. The Scripps Howard Foundation used its share of the gift to double the size of grant awards available for families of Scripps employees with an urgent financial need. Employees can now apply for $2,000 in assistance.
“It’s long been a part of the Scripps values to recognize what’s going on in the broader context,” Symson said. “We felt like funding the COVID-19 assistance fund would help us support our employees through this period, give us the best chance of retaining, and ensure that we would be able to execute our mission and serve our audiences best.”
Methodology
Below is an interactive database of 122 executives who were paid a combined $354 million in total compensation in the 2019 fiscal year. Procter & Gamble Co. CEO David Taylor was the region's highest-paid boss, with $20.5 million in total compensation, up 18% from the prior year. Kroger CEO Rodney McMullen ranked second at $14.3 million, followed by Carl and Craig Lindner, co-CEOs of American Financial Group, each of them paid $10.5 million in salary, stock awards, perks and bonuses.
WCPO obtained compensation data from S&P Global Market Intelligence, which pulled it from annual proxy statements companies filed with the Securities and Exchange Commission. Specifically, compensation data from the "summary compensation table" in each company's proxy document was analyzed. The pay category Changes in Pension Value was excluded from tabulations, because it is an actuarial estimate and does not reflect actual gains and losses. Because of this exclusion, WCPO’s pay ratio estimates might differ from ratios disclosed by companies. Median pay and shareholder return numbers for 2018 were also supplied by S&P Global Market Intelligence. Median pay numbers from 2017 were pulled from SEC reports by the companies identified in this analysis.
