Amid criticism, some CEOs voluntarily reducing pay

December 4, 2014

Practitioner Insights thumbnail 2(Editor’s Note: This post is an excerpt from an article appearing in Practitioner Insights on WestlawNext)

In the midst of criticism from shareholders and commentators over excessive CEO pay, some executives are voluntarily choosing to reduce their compensation. Most recently, Park Electrochemical Corp. announced that Chairman and CEO Brian Shore is donating his 2014 fiscal year bonus to charity and will voluntarily reduce his salary by 20 percent.

According to a Form 8-K filed with the Securities and Exchange Commission on Dec. 3, Shore declined to accept the compensation committee’s offer of a bonus and a salary increase each year between 2001 and 2008. In 2008 through 2013, Shore declined a salary increase and donated his bonuses in their entirety to charity.

This year, Shore went a step further by voluntarily reducing his salary by 20 percent. He stated that he did so “as a gesture of solidarity with the employees” of two of the company’s business units who are working reduced hours or four-day work weeks in response to “the weak market in North America for the Company’s high-end electronic materials products.”

Reducing his salary in line with decreases in workers’ salaries may help Shore avoid criticism regarding the disparity between executive and employee pay. Such disparity has become a major concern of activist shareholders and commentators in recent years.

To help address the problem, the SEC proposed rules in September 2013 that would require each company to disclose the ratio between its CEO’s pay and the compensation of its “average worker.” The commission has not yet issued final rules, but they are expected early next year.

Shareholder activists have used such pay ratios to argue against companies’ executive compensation programs. At Chipotle Mexican Grill Inc., for example, union pension fund advisor Change to Win Investment Group (CtW) issued a letter to shareholders arguing that the company suffers from “pervasive pay problems.”

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