Following the upheaval of 2020 and 2021, many companies have offered executives retention bonuses to retain talent through the rebuilding. However, given the broader economy’s experience in the pandemic, even justified rationale behind such awards is likely to fall on deaf ears when it comes to investors, proxy advisors and the media.
A recent
op-ed from Bloomberg dives into several examples and discusses the broader optics of the awards, noting, “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.”
- AMC, citing decreased values in stock-related compensation and increased management resignations, provided managers $17.5 million of special incentive bonuses for 2020 despite reporting a $4.6 billion annual loss. CEO Adam Aron’s pay doubled to $20.9 million. ISS recommended that shareholders reject AMC’s compensation plan at next week’s annual meeting.
- Norwegian Cruise Line offered significant bonuses to CEO Frank Del Rio to get him to sign a three-year agreement, including $8.8 million in inducement bonuses and restricted stock awards. Further, his $3.6 million annual bonus was changed from an earnings-related target to one that incentivized a reduction in cash burn. All in all, his compensation nearly doubled from 2019 to 2020 during a period where the company recorded a $4 billion pandemic-driven loss.
Very few outsiders will accept a company’s rationale for a retention award when performance is down, but loss of leadership in a crisis is a real risk. Some steps can be taken to mitigate concerns such as using restricted or performance-based equity and clearly disclosing what goals are being set for those that receive retention awards. However, companies should expect some negative PR, as well as criticism from proxy advisors and subsequent reduced shareholder support for SOP proposals.
