CEO Pay Cuts: Yippee, Sort Of

It's been an ugly year or two. Those of us lucky enough to have hung onto our jobs may not have received salary increases and we may not even be too upset about that, all things considered.

In loftier corporate levels, though, CEOs operate in a different setting. You probably won't be surprised to learn that CEO compensation has kept rising, in general, even in this crummy economy. Take Chesapeake Energy's (NYSE: CHK  ) Aubrey McClendon, for example, whose compensation was in the neighborhood of $25 million in 2007 and then topped $100 million in 2008, according to CNNMoney. Yikes.

Still, here's some uplifting news: Some CEOs saw a decrease in their base salaries. Check it out:

Company

Recent CEO Base Pay Cut

General Motors

Cut to just $1

Ford Motor (NYSE: F  )

Reduced by 30%

FedEx (NYSE: FDX  )

Reduced by 20%

American Express (NYSE: AXP  )

Reduced by 10%

Motorola (NYSE: MOT  )

Reduced by 25%

EMC (NYSE: EMC  )

Reduced by 15%

Cummins (NYSE: CMI  )

Reduced by 10%

Source: Harvard Business Review.

It seems that a full 373 public U.S. companies reduced their CEO's pay between last June and this past June. Of course, that's out of many thousands of companies, so it's not that impressive.

What to make of it
CEO compensation has been rising so rapidly and seems so out of control that I suppose we should be happy for whatever meager signs of rationality we see. But temper even that, because while some base pay amounts may be reduced, many CEOs will still see their total pay rise due to payments in other forms, such as stock and bonuses.

Our outrage is deserved. That's why we might want to pay attention to say-on-pay proposals that are becoming widespread at lots of companies. Until shareholders finally put their feet down and demand greater accountability, you can expect to see obscene compensation packages continue.

Sick of paying CEOs for bad performance? Fool Alyce Lomax shines the light on the disconnect between high CEO pay and bad stock performance.

Longtime Fool contributor Selena Maranjian owns shares of American Express and Chesapeake Energy. FedEx is a Motley Fool Stock Advisor recommendation. American Express and Chesapeake Energy are Motley Fool Inside Value picks. The Fool owns shares of Chesapeake Energy. Try any of our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.

 


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  • Report this Comment On October 02, 2009, at 5:19 PM, BigBellyBob wrote:

    Right after Motorola CEO Greg Brown "took a pay cut" to appease angry shareholders.... a few days later on May 9, 2009 he gave himself 378,800 FREE shares of stock. I wish someone would "cut" my pay like that!

    Here, take a couple million bucks in free stock--they're just lying around, cluttering up the place.

  • Report this Comment On October 08, 2009, at 12:57 PM, paulwanderson wrote:

    I agree with BigBellyBob - CEO's who make a big deal about taking a salary cut don't impress me in the least. In fact, it angers me, because they brag about it like it's a big deal, when anyone that knows anything about upper management compensation realizes that salary is a very small percentage of their overall compensation.

    In most of the examples given above, a 15-30% salary cut only works out to be 3-7% of their total compensation, if that much. To be truthful and completely transparent, they should decrease their guaranteed bonuses, huge stock option grants, executive retirement programs and others perks (car, plane, clothing allowances, etc) by 25% in addition to their salary.

    Then, they just MIGHT get my attention a little bit. Even then, their lifestyle won't be impacted near to the degree of the rank and file workers that are (1) losing their jobs completely, (2) taking 5-10% paycuts, (3) going without bonuses, 401K contributions, etc. Some of the rank and file workers are having to downsize homes or even lose their homes, cut out necessaties such as medicines, etc. and drastically alter their lives because of paycuts. If you believe that any of the above CEO's will have to drastically alter their lives because of the supposed "paycut", then you're just naive and need to do some further research.

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