Top in-house lawyers are getting their compensation cut along with other executive officers as the new coronavirus causes widespread economic distress.
“We just thought it was the right thing to do,” Accel general counsel Derek Harmer told Bloomberg Law in an email after that story was published. “Everyone is making sacrifices.”
Veta Richardson, president and CEO of the Association of Corporation Counsel, said that she can’t recall another time when executive pay cuts have become so extensive.
“As CEOs of companies such as Marriott, Hyatt, Macy’s, and many others in the retail, hospitality, airline, and consumer goods industries are cutting or foregoing their pay altogether, the executives who report to them are being tasked to do the same,” Richardson said. “GCs are among the corporate executives who are being personally impacted financially.”
Marriott announced earlier this month that CEO Arne Sorenson, a former Latham & Watkins partner who battled cancer last year, would not draw a salary for the remainder of 2019 and that other top executives would take 50% pay cuts as the world’s largest hotel company furloughed thousands of workers after its business was hit hard by the coronavirus.
A Marriott spokeswoman confirmed that general counsel Rena Hozore Reiss is among those executives taking a pay cut. Reiss, who joined Marriott in December 2017, was not listed as among the company’s highest-paid executives in its most recent proxy statement for 2018. Sorenson earned nearly $13 million in total compensation that year, including about $4.23 million in cash, according to securities filings.
While previous economic downturns have resulted in general counsel pay freezes, reduced equity grants, and unpaid incentive bonuses, the coronavirus’ pandemic is “unprecedented” in that it’s ground to a halt almost all business activity in some industries, the ACC’s Richardson said.
Dimitri Mastrocola, a lawyer, partner, and recruiter at legal consulting firm Major, Lindsey & Africa, said he couldn’t recall immediate salary cuts being done for law department leaders during previous economic downturns, such as what followed the 2008 financial crisis.
Lee Udelsman, a colleague of Mastrocola’s at Major Lindsey and the firm’s in-house counsel recruiting leader, said it’s too early to tell whether base salary cutbacks will become widespread. Instead, he thinks the current spate of C-suite salary slashing is more likely a temporary blip from certain segments of the economy trying to cope with Covid-19.
“While certainly no one relishes a pay cut, it sends a message to the rank-and-file that the economic pain associated with this pandemic is being felt equally, especially if a company has a large number of hourly employees who are subject to layoff,” Udelsman said.
Udelsman and Mastrocola predicted that other components of in-house compensation—such as short-term incentives (STI) like cash bonuses and long-term incentives (LTI) like stock options and awards—are the most likely to take a hit.
Despite hopes for an abbreviated recession, several companies announced executive pay cuts within the span of a few days.
The Cheesecake Factory, a casual dining chain, disclosed in a March 25 securities filing that it would furlough 41,000 hourly restaurant workers and reduce the 2020 base salaries for certain executive officers by 20% as of April 1. Those executive officers include general counsel Scarlett May, hired by the Cheesecake Factory in 2018, a year in which she received nearly $1.18 million in total compensation, including a base salary of $304,052, per the most recent annual proxy statement filed by the Calabasas, Calif.-based company.
Other enterprises like Phoenix-based luxury travel and events company Viad Corp., Irving, Texas-based real estate investment trust CorePoint Lodging Inc., Dodgeville, Wis.-based clothing retailer Lands’ End Inc., and Berwyn, Pa.-based plastic components producer Trinseo SA have recently disclosed in securities filings changes to their compensation structure.
Lands’ End announced that as of March 28 its management team had voluntarily agreed to a range of cost-cutting measures, including a 20% reduction in the base salary of general counsel Peter Gray, “in response to the Covid-19 crisis.” Gray, hired in 2017, had a total compensation package of $1.51 million in 2018 with a base salary of $548,835, per a proxy statement filed by Lands’ End that year.
Trinseo said March 27 that chief legal officer Angelo Chaclas would reduce his base salary by 25% percent during the second quarter as a result of “the uncertainty caused by the effects of the Covid-19 novel coronavirus and its economic impact on the company.” Other executives at Trinseo, which paid Chaclas a base salary of $435,000 in 2018, have also voluntarily agreed to temporary reductions.
Viad general counsel Derek Linde will have his salary reduced 20% during the next 90 days, while CorePoint said general counsel Mark Chloupek would be among several executives taking part in a new short-term incentive plan. Chloupek’s base salary was $427,122 in 2018, a year in which his total compensation was $3.9 million, while Linde took home $800,720 in total compensation that same year, $235,890 of which was in base salary, per securities filings.
Chaclas, Chloupek, Gray, and Linde did not respond to requests for comment.