Tech CEO Salary Cuts Aren’t Always the Sacrifice They Seem

For most executives in the industry, salary makes up only a small portion of their total compensation.

(Bloomberg) — After announcing a 17% reduction of its workforce, Twilio Inc. said Chief Executive Officer Jeff Lawson’s base salary would be trimmed by about half to $65,535. The week before, Eric Yuan, the billionaire founder of Zoom Video Communications Inc., said he would reduce his salary and forgo a bonus after cutting 1,300 jobs at the video conferencing software provider. 

Corporations are increasingly keen to show investors they’re heeding calls for steep cost-cuts to help margins — including chopping CEO salaries — following a year when the tech-heavy Nasdaq 100 Index plunged 33%. But for most executives, salary makes up only a small portion of their total compensation, which is heavily weighted toward stock awards and options. 

Lawson’s base salary, for example, was less than 1% of his total 2021 compensation package of $14.6 million, according to the company’s annual report. 

Yuan’s salary of $301,731 amounted to about a fourth of his annual compensation in fiscal 2022, according to Zoom’s proxy statement. Still, he controls more than 13% of the company’s shares directly and through entities associated with his family, helping him build a fortune estimated at $5 billion, according to the Bloomberg Billionaires Index.

“As the CEO and founder of Zoom, I am accountable for these mistakes and the actions we take today,” Yuan said in a Feb. 7 blog post. “And I want to show accountability not just in words but in my own action.”

Leaders of more-established companies are facing pay cuts, too. At Micron Technology Inc., which is reducing jobs by 10%, CEO  Sanjay Mehrotra will see his salary reduced by a fifth, the chipmaker said in a regulatory filing in February. Mehrotra had a base salary of $1.41 million in fiscal 2022, but most of his total $28.8 million in compensation came from stock awards. 

To be sure, some of the cuts go beyond just salary. Apple Inc. plans to reduce CEO Tim Cook’s compensation by more than 40% to $49 million in 2023, citing investor guidance and a request from Cook himself to adjust his pay. The company, which hasn’t announced large-scale layoffs, had previously drawn criticism from shareholder advisory groups such as Institutional Shareholder Services about Cook’s previous compensation package.

Still, the reduction in his award may not last long. The company’s compensation committee plans to adjust his annual target compensation between the 80th and 90th percentiles relative to its peer group. 

Companies will continue report on pay packages for 2022 in the coming weeks as part of their proxy statements, which will shed more light on executive pay reductions or increases. 

“I think you’re going to see flat CEO pay for the first time in a long time,” said James Reda, who consults companies on executive compensation as national managing director at Gallagher.

–With assistance from Jo Constantz.

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