Many companies are preparing for troubling economic times in the coming year, and as the most highly paid employee of the company, some CEOs may consider skipping their bonus or taking a pay cut.
Key Details
- While the average U.S. worker’s pay has not kept pace with inflation in the last year, the median salary for U.S. CEOs increased 7.7% last year, Reuters reports.
- That growth is not new, as a similar study last year showed CEOs received an average pay increase of 31% in 2021.
- However, as the average U.S. citizen struggles with the growing costs of basics like groceries and housing, some company leaders may want to reconsider accepting bonuses.
- Not only could turning down bonuses increase worker loyalty, but it could help companies save on expenses, something most are looking to do right now.
Why it’s news
Often, CEO bonuses are well-deserved after a year of hard work and leading the company to success. It is not unusual for a CEO to forgo a bonus if the company performed poorly that year or, in some other way, had a negative public image. For example, earlier this year, five executives at Southern Water, a UK-based water company, gave up their bonuses after the company was responsible for significant sewer spillage.
However, turning down a bonus due to financial strain is a less common move from company executives. It can be difficult to turn down additional pay, especially when the company’s performance may have been positive the year before, and the financial difficulty may not be through any fault of the CEO.
Still, with more attention on the pay disparity between employees and executives, skipping a company bonus may be the right move for some leaders, if only to increase employee loyalty.
“If the company faces financial difficulties, such as layoffs or budget cuts, it may be appropriate for CEOs to forgo their bonuses as a gesture of solidarity with their employees,” Pearl Lemon founder and CEO Deepak Shukla says.
Resentment about the pay disparity may be even stronger this year due to higher inflation rates. Many average workers are struggling with growing housing, utility, and food costs. Hearing that their boss received a hefty bonus could be a blow to employee morale.
Senior partner at Global Advisory RADICL Ken Oehler believes that turning down a bonus can be a positive move for executives in the long run.
“If voluntary, it’s a strong signal of commitment to employees and shareholders,” he says.
In January this year, Apple CEO Tim Cook took this concept a step further and announced that he would reduce his pay by 40%. Still, he will be paid $49 million in total compensation in 2023.
Bacon Marketing founder Philip Bacon believes that at a time when company layoffs are widespread, more CEOs should consider at least forgoing their yearly bonus.
“During tough economic times, when layoffs or pay cuts become necessary, it’s essential for a CEO to lead by example. By sacrificing their bonus, they demonstrate solidarity with the affected employees and take on a fair share of the burden,” he says. “It’s a way to show that you’re not asking your employees to make sacrifices you’re not willing to make yourself.”