Covid-19 Pay Cuts Are Coming to an End at Some Companies
Some companies are beginning to restore cuts they made to managers' salaries and bonuses in the early, bewildering days of the pandemic shutdowns, a sign that some industries--and their white-collar workers--are benefiting from glimmers of a recovery while millions of others continue to endure job and income losses.
In the first weeks of the pandemic, companies contending with government-ordered lockdowns, plummeting orders and closed stores reasoned that cutting pay could lower costs and stave off greater job losses. Many targeted higher-level executives' compensation as a sign of solidarity with furloughed workers earning much less. By mid-July, roughly a quarter of major public companies reduced pay for CEOs and other executives, according to an analysis by consulting firm Compensation Advisory Partners.
Now, a number of companies, including Walt Disney Co., General Motors Co. and Yelp Inc., are restoring executive and some white-collar worker salaries to previous levels, while others are paring earlier pay cuts. At many firms, the moves reflect an acknowledgment that stressed-out workers--many juggling child care and remote learning--can't work full-time for partial pay.
They also indicate an economy increasingly cleaving to two tracks: one in which the livelihoods of white-collar professionals in certain industries have remained largely intact, and another for lower-income workers, many of whom work in service jobs in hard-hit industries such as hospitality, travel and retail. Millions of them have lost jobs, been furloughed or seen their hours cut.
"When we first started out, it was like, 'Yeah, everybody's in this together, this is a tough time, we've all got to take sacrifices and pull together,'" said Susan Schroeder, a partner at Compensation Advisory Partners, who notes larger companies have been more likely to restore executive pay as smaller businesses continue to struggle. "Now that it has dragged on, I think things have changed a little bit."
Some boards and executives, she says, may be pushing for compensation changes since many pay cuts were initially billed as short-term, set at a time when many expected the pandemic would abate by summer. Most executives make the bulk of their compensation in stock-based awards or other long-term incentives, so many observers consider the initial salary cuts largely symbolic.
Not all companies restoring pay have bounced back, and many, such as Disney, have furloughed workers and are reporting big losses. New applications for unemployment benefits rose last week after a series of declines, the Labor Department said last week--an indication fresh layoffs are occurring even as the economy broadly is showing signs of recovering.
Disney will this week lift some salary reductions for executives put in place early in the pandemic, despite posting a nearly $5 billion loss in the quarter that ended June 27.
The entertainment news website Deadline was the first to report news of Disney's move.
A number of executives took pay cuts beginning in April to help the company weather the crisis. Bob Iger, Disney's executive chairman, will forgo nearly his entire salary through the last payroll period in the company's fiscal year, which ends in September.
Other companies say the decision to reinstate full compensation reflects an improved business outlook.
Yelp, which laid off 1,000 workers and furloughed more than 1,100 others in the spring, said in July it is bringing back nearly all of its furloughed staffers, and would fully restore employee pay and hours.
The company in April announced a 20% to 30% cut in executive pay. In a July note to employees, Yelp Chief Executive Jeremy Stoppelman said "the hard steps we took early on have put us in a stronger position."
In April, General Motors announced it would temporarily trim 69,000 workers' salaries by 20%, then repay the money with interest in March 2021.
Those salary deferrals for its white-collar workers ended on Aug. 1, sooner than expected, and the company plans to repay the lost wages with interest in the fourth quarter of this year, GM spokesman Jim Cain said.
"The business is recovering faster than expected, so we were able to restore pay and we will repay people faster than planned," he said.
Oil producer Occidental Petroleum Corp. in late July said it would restore the salaries of some executives.
The company had capped the base salaries of its executive officers to $250,000 in early April, but in July said it would double that to $500,000, which it described in a securities filing as a "partial restoration" in pay.
The annualized base salary of the company's chief executive officer, Vicki Hollub, will be approximately 53% lower than last year, the company said.
Ms. Hollub earned a base salary of $1.33 million in 2019, according to the company's latest proxy filing. The company also restored lower-level employee salaries on July 1, a spokeswoman said.
Virginia hospital operator Sentara Healthcare said it plans in October to stop the 20% pay cuts its senior executives took and the 10% reduction its physicians received.
Sentara also reinstated its previously scheduled salary raises earlier this month that had been postponed and resumed contributions to employee retirement plans, said Becky Sawyer, senior vice president and chief human resources officer.
The company said the temporary cuts were meant to stave off layoffs and that its business bounced back after it was able to resume elective surgeries and non-urgent procedures in recent months.
"The combination of everything we did gave us the ability to turn things around as quickly as we did," Ms. Sawyer said.
The law firm Reed Smith LLP said it plans to roll back some of the pay cuts it made earlier this year to its lawyers and much of its professional staff.
Effective Sept. 1, the firm plans to reduce the 20% pay cut it initiated for some employees to 15% and said it's professional staff earning more than $100,000 will have its current 10% pay reduction lessened to 5%.
Many larger U.S. companies are also still planning on giving their employees pay raises and annual bonuses over the next year, according to a recent survey from Willis Towers Watson, an advisory firm.
Companies gave employees pay increases between 2.5% and 2.7% this year and are projecting average salary increases of 2.8% in 2021, according to the firm. Salary increases have hovered around 3% for the past decade.
Only 7% of companies aren't planning pay increases next year, down from 14% this year and less than 1% in 2019, a sign that many companies have cautious optimism for 2021, said Catherine Hartmann, North America Rewards practice leader at Willis Towers Watson.
She said that while companies are going to remain wary through the next year, many are still planning to reward their best-performing workers with raises.
"We are right now in a phase of restabilization, people are looking back at the choices they made in the first three months and saying which of these were appropriate and rethinking what they were doing," Ms. Hartmann said.
Even if businesses haven't fully recovered, some executives say it is only fair to restore workers' pay. Employees at Seattle-based payments processor Gravity Payments banded together in March and voluntarily accepted pay cuts as the company watched its business evaporate.
Meanwhile, revenue had plunged 55%, and the company was on track to lose $1.5 million a month, said Chief Executive Dan Price.
At that rate, the company would have been out of business in two to five months, he said.
Mr. Price gave up his salary, and on their own, employees created a shared spreadsheet, where they anonymously volunteered to take a range of salary reductions. The employees' moves bought the company time; on average, employees took about a 22% pay decrease.
Though Gravity will likely continue to lose money for the next year, its business has stabilized and it restored salaries for its 200 employees in July.
The company received a $4.6 million loan from the Paycheck Protection Program, which helped in bringing back the pay, Mr. Price said.
"People were relieved and happy, but I also think people rightly felt like they had deserved it and that it was the right thing for me to do," he said. "What I said to the team at that time--and which I still believe--is 'you've trusted us so much, you've given up your power and resources to save us as a company. Now it's time to trust you and give these power and resources back to you.'"