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Executive Pay Cuts during Covid: Yielding to Pressure or Potential for Real Change?

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  • Florian Meier

    (AFG College with the University of Aberdeen, Qatar)

Abstract

Executive compensation has been the subject of longstanding criticisms for possibly setting wrong incentives or for being excessive. In the Covid pandemic in 2020/2021, numerous CEOs worldwide decided to temporarily forgo part of their compensation in response to calls for solidarity with stakeholders who had to make financial or other sacrifices. While there have been suggestions that these concessions might be the starting point for wider reforms of executive compensation to address some of the criticisms, pay has quickly returned to pre-Covid levels and reached new record highs. This article examines whether the executive pay concessions made during Covid should be considered a temporary phenomenon, or whether they might indeed have the potential to start a larger process of reassessing and reforming executive compensation. The analysis explored three angles: First, the cuts to compensation themselves were examined to understand the type of compensation affected and their magnitude. Second, reasons and pressures that led firms to adjust pay during the onset of the crisis were explored, and whether they can be considered temporary or more fundamental. Third, the theoretical angle used legitimacy theory, institutional theory, and resource dependence theory to assess the intention and longevity of measures undertaken. Taken together, the analysis suggests the actions on pay were a temporary reaction to a specific situation, and do not seem to be intended nor contain potential for longer lasting, widespread changes.

Suggested Citation

  • 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.
    • Handle: RePEc:ejn:ejbmjr:v:11:y:2023:i:2:p:91-109
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    References listed on IDEAS

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    2. 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).
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