Arthur H. Kohn is a partner and Caroline Hayday is counsel at Cleary Gottlieb Steen & Hamilton LLP and Michael R. Marino is Managing Director at FW Cook. This post is based on their Cleary Gottlieb memorandum. Related research from the Program on Corporate Governance includes Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here).
Executive pay in the midst of the pandemic presents an obvious dilemma. On the one hand, it would be a stretch to blame fairly management teams for most of the adverse financial performance that will stretch across a broad range of industries. On the other, they cannot escape the consequences either.
Consider that while stock values may bounce back for many companies in the reasonably short term, it is unlikely that business will quickly return to the status quo ante. In some industries, the markets for products and services may change permanently; in other industries, supply chain and inventory management may also be permanently affected. Not least, rank and file employees and other stakeholders across the economy will suffer. Many executives will take short-term salary cuts in recognition of the hardship, but that is a preliminary and largely symbolic step and compensation committees need to find the right overall balance between reward and respect for the economic environment.