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Were CEO pay cuts during the COVID-19 pandemic merely symbolic? Shareholders' reaction and outrage

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  • Bedford, Anna
  • Bugeja, Martin
  • Ghannam, Samir
  • Jeganathan, Davina
  • Ma, Nelson

Abstract

We examine whether CEO pay cut announcements during the COVID-19 pandemic are symbolic and made to appease various stakeholders. We find that firms announcing a CEO pay cut are more likely to announce news that has a negative impact on their stakeholders, suggesting that pay cut announcements were used to alleviate stakeholder pressure. We also document that the pay cut announcements are associated with lower CEO salary but not total pay. In fact, our results suggest that pay cut announcements were symbolic, whereby salary cuts were substituted with increases in cash bonuses. Furthermore, we find a lower rate of shareholder dissent votes if a firm announced a pay cut. However, this effect is reduced if the CEO received higher total pay. Finally, we document higher shareholder dissent votes if a firm received government subsidies and paid higher CEO compensation or increased dividends. This suggests that shareholders do not prioritise their immediate financial interests and hold managers accountable for actions perceived negatively by the public.

Suggested Citation

  • Bedford, Anna & Bugeja, Martin & Ghannam, Samir & Jeganathan, Davina & Ma, Nelson, 2023. "Were CEO pay cuts during the COVID-19 pandemic merely symbolic? Shareholders' reaction and outrage," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:pacfin:v:79:y:2023:i:c:s0927538x23000598
    DOI: 10.1016/j.pacfin.2023.101993
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    Cited by:

    1. Florian Meier, 2023. "Executive Pay Cuts during Covid: Yielding to Pressure or Potential for Real Change?," Eurasian Journal of Business and Management, Eurasian Publications, vol. 11(2), pages 91-109.

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    More about this item

    Keywords

    Pandemic; COVID-19; CEO pay; Say on pay; Executive pay cut; Shareholders' reaction;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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