Sonic Automotive Inc , which operates 95 U.S. car dealerships, started laying off and furloughing about a third of its workforce as the coronavirus pandemic crushed its sales. Then it changed its executives' pay packages - handing them a multimillion-dollar windfall. On April 10, Sonic's board
1 / 5FILE PHOTO: Christopher Nassetta, the President and CEO of Hilton, participates in meeting with U.S. President Trump on coronavirus response at White House in WashingtonBy Jessica DiNapoli and Ross Kerber
"Be a mensch," Nadohl said, referring to Sonic executives with a Yiddish word meaning honorable person."Take a 50% cut for six months." Story continuesIn an April 21 filing, for example, Sirius XM said it"may be prudent" to change executive pay terms to ensure it can attract and retain"senior management talent." Delta said in a filing that its performance measures no longer suited the"current reality" and that the value of executives' incentive pay had declined by more than half in the pandemic.
Critics say protecting executives' pay in downturns undermines practices intended to tie compensation to shareholder returns. Nell Minow, vice chair of corporate governance consultant ValueEdge Advisors, said such plans need both an upside and a downside.Others counter that the moves to protect executive pay might serve investors as well as executives.
Two weeks later, however, the company granted its top brass stock grants of roughly equivalent value to the salary cuts. Vanguard, the world's largest mutual fund firm, said on its website earlier this month that it was not appropriate for boards to create"easier" executive performance targets, despite the challenging environment.
Sonic's pay changes are"pretty egregious," Aaron Bertinetti, head of research and engagement at proxy advisor Glass, Lewis & Co.Covia, a materials supplier to the energy industry, has cut at least 7% of its workforce of about 2,662 employees in the crisis. The company said that the pandemic and volatile oil markets had"rendered obsolete" its performance-based incentive program for executives, including CEO Richard Navarre.
G-III CEO Morris Goldfarb, who owns about 8% of the company, had earlier given up a $1 million annual cash salary as part of steps the firm said it took to increase"financial flexibility." The company also said that cash incentive payments to Goldfarb - which accounted for about 70% of his $16.6 million total pay last year - could be reduced this year because of the pandemic's impact on company performance.
Signet Jewelers is also giving executives more shares based on time, and less on performance, which could help blunt the impact of the economic crisis on their pay. Time-vesting shares made up 35% of executives' long-term incentive plan before the pandemic, with the balance of the stock awards linked to profitability measures. The new structure gives time-vesting and performance shares equal weighting.
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