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Coronavirus cuts to CEO pay were short-lived

June 25, 2020, 2:00 PM UTC

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As the coronavirus pandemic began to decimate American businesses in March, companies struggling financially rushed to cut executive pay as a signal to their customers and workforces: We’re in this together. But some firms that slashed CEO compensation are already—barely a quarter later—starting to reinstate it.

Michelle Leder, founder of the website Footnoted, which examines routine Securities and Exchange Commission filings, first noted the trend in the New York Times Dealbook newsletter. Darden Restaurants, the parent company behind Olive Garden and LongHorn Steakhouse, cut its CEO’s $1 million base salary to zero in early April; on June 1, the company became one of the first to restore that salary while also ending other executives’ 50% pay cuts.

Leder also noted that Rollins Inc., parent of the pest control brand Orkin, recently brought back up executive base pay; retailer the Buckle increased its CEO’s and chairman’s compensation packages from zero to a smaller 50% cut.

A Fortune search turned up more examples: The Fortune 1000 motor vehicles and parts company Meritor in early June reduced the size of pay cuts for its executives and its board directors. Another company in the same field, LCI Industries, fully restored its chief executive’s $1 million base salary. Ascena Retail Group, the company behind the Ann Taylor and Loft brands, reinstated full base pay for members of its C-suite.

While the economy is on an upswing from the depths of the pandemic’s associated economic crisis earlier this year, the effects of the downturn are certainly still being felt. The public companies that have so far restored executive pay straddle the automotive, restaurant, and retail industries. When Darden Restaurants cut executive compensation in April, its 1,800 restaurants were closed for dining in; in recent weeks, many Olive Garden locations throughout the country have reopened. Similarly, retailers have begun to see the malls their stores are located in reopen in some parts of the country.

Some of these companies may be in a stronger financial position after furloughing workers for months; Ascena, for example, furloughed retail associates and half its corporate workforce.

But for C-suite executives who earn the lion’s share of their compensation from stock awards, pay cuts were largely symbolic. So why, during a time when the nation is reckoning with inequality of all kinds, would a company want to be the first to increase the salary of its highly paid CEO—and potentially be seen as backtracking on a promise to share the burden of this crisis equally?

Ascena, for its part, noted in a filing that it was reinstating pay “to enable the company to retain and continue to motivate its [named executive officers] and other officers and employees.”

But another reason may be that bringing executive pay back up to pre-pandemic levels, while sending one message to employees and consumers, communicates something entirely different to investors. “It can signal to the market that you’re getting back to business as normal—and putting your laser-like focus on total shareholder return,” says Michael Useem, a professor of management at the Wharton School. “It’s one way of signaling to hedge fund activists that you’re back to capitalism as practiced before.” By “before,” Useem means everything from before the pandemic to before companies were expected to issue statements on racial justice to even before the Business Roundtable made a commitment to valuing other stakeholders, like employees and customers, as highly as shareholders.

That may be a message some companies want to communicate amid greater attention paid to corporate responses to social injustice, Useem says. But this first wave of companies choosing to restore executive pay—months before the end of 2020, the point that some other companies committed to suspending some executive salaries—are still making that decision early. “To do it while we’re still not even out of the first wave of the coronavirus,” Useem says, “does seem on the face to be a statement about the hypocrisy of that first statement [of halting executive pay].”

But communicating shareholder return as a top priority to investors doesn’t counter the separate—and more negative—signal these pay bumps may send to other stakeholders. “This is a great moment to hold the line on executive pay to share the pain,” Useem says. “In the long run, I think it will be borne out that shareholders are going to benefit from that.”