Pandemic pay cuts: Analysis shows real estate CEOs aren’t giving up much

Executives forgoing salary can still make millions from bonuses and stock

TRD NATIONAL /
Apr.April 30, 2020 07:30 AM
Clockwise from top left: Macy's Jeff Gennette, Redfin's Glenn Kelman, Vornado's Steve Roth, Realogy's Ryan Schneider, Cushman & Wakefield’s Brett White and CBRE's Robert Sulentic (Credit: Getty Images; Illustration by The Real Deal)

Clockwise from top left: Macy’s Jeff Gennette, Redfin’s Glenn Kelman, Vornado’s Steve Roth, Realogy’s Ryan Schneider, Cushman & Wakefield’s Brett White and CBRE’s Bob Sulentic (Credit: Getty Images; Illustration by The Real Deal)

Marriott International’s business was already down 75 percent by March 19, when the hotel chain’s CEO Arne Sorenson posted a somber update. With his industry pummeled by the coronavirus pandemic, Sorenson spoke of the need to cut staff and said he would forgo a paycheck for the rest of the year.

He’s not alone. As companies across the real estate industry lay off and furlough workers, many leaders have said they’ll share the pain by taking pay cuts. Cushman & Wakefield’s Brett White, for example, took a 25 percent salary cut. Vornado’s Steve Roth halved his salary, and David Simon at Simon Property Group, Bob Sulentic at CBRE and other chief executives are forgoing theirs entirely.

But for CEOs, giving up their salaries is very different from going home empty-handed. Bonuses, performance-based awards and stock options often dwarf their regular pay. Sorenson’s salary, for example, made up less than 10 percent of his total compensation in 2019.

An analysis by The Real Deal of more than 20 public companies whose CEOs have announced cuts to their own salaries found most of the executives were sacrificing less than 10 percent of their overall compensation – far less of a hit to total compensation than many rank-and-file employees have had to take.

To gauge the impact of the cuts, TRD examined CEO base pay and total compensation for the most recent year available, which in most cases was 2019.

On average, the CEOs gave up just under 20 percent of their total compensation. But that figure was inflated by the two — Glenn Kelman of Redfin and Jeff Gennette of Macy’s — who pledged to forgo all forms of payment. Both companies have had to take drastic measures to deal with the financial crunch of the pandemic. Redfin has furloughed over 40 percent of its agents and is trimming staff, and Macy’s is furloughing the bulk of its employees.

Across the 23 companies for which TRD could calculate the CEO’s pay cut as a share of total compensation, the median was just 9.7 percent.

The executive taking the smallest hit is White, who said he would contribute the 25 percent of salary that he is forgoing to Cushman’s relief fund for employees hurt by coronavirus.

White’s salary was $950,000 last year, while his total compensation was roughly $9.3 million. His salary cut amounts to 2.6 percent of that. The CEO reaped more than $45 million in stock awards in 2018, the year of Cushman’s initial public offering.

Since the pandemic struck, some 300 companies have slashed executive pay, according to executive compensation consultancy Semler Brossy. Of that group 43 percent were consumer goods and discretionary businesses. Real estate companies made up about 7 percent of the list.

Experts say cutting executive pay is good optics.

“When employees are having their pay cut or even being laid off, many CEOs are encouraged, if not motivated, to show some esprit de corps by also taking a pay cut,” said Stewart Reifler, a lawyer specializing in executive pay. He noted that cutting a CEO’s salary by 50 percent is a “good start” but may not make a big dent in overall compensation.

Since the 1990s, the vast majority of CEO compensation has been “performance-based,” including bonuses and stock options. A 1993 federal law, meant to rein in executive pay by capping the annual deduction allowed for salaries at $1 million per executive, ultimately had the opposite effect because companies simply shifted their pay structure.

Executive compensation outside of salary this year could be lower than usual. Irv Becker, vice chairman for executive pay and governance at consulting firm Korn Ferry International, said CEOs have seen their stock decline since late February.

“The reduction in salary may be small in proportion to their target compensation, but you also have to remember all the stock they own is probably significantly less valuable than it was a few months ago,” he said. The S&P 500 real estate index is down 11 percent this year.

Consider Realogy CEO Ryan Schneider, who is taking a 90 percent pay cut from his $1 million base salary. Although that comprised about 10.2 percent of his total reported $8.8 million compensation in 2019, roughly 90 percent of his remaining salary is “at risk,” or in the form of performance-based cash and equity that depends on Realogy hitting certain financial benchmarks. On Wednesday, Realogy’s stock closed Wednesday at $4.60 per share, down 65 percent from a year ago.

Compared to the overall market, REITs have experienced greater losses, and the hospitality industry has suffered disproportionately during the pandemic. Canceled events and travel restrictions across the globe have driven hotel occupancy to devastating lows.

Marriott, Wyndham and Pebblebrook all enacted sweeping layoffs or furloughs, and the chains’ CEOs pledged to take no salary.

Arne Sorenson (Credit: Twitter)

But Marriott CEO Sorenson’s $1.3 million salary in 2019 made up less than 10 percent of his $13.4 million total compensation. Pebblebrook CEO Jon Bortz’s $750,000 salary comprised about 14 percent of his $5.4 million package, and Wyndham CEO Geoff Ballotti’s 2019 salary of $999,999 was about 15 percent of his $6.7 million.

An exception was Justin Knight, the CEO of Apple Hospitality, who said he’d take a 60 percent cut to his total compensation, which was $6.1 million in 2019.

Becker said companies in greater financial distress may be more aggressive about executive pay cuts. “It’s a little bit more about messaging and optics than it is about cost savings,” he said, “Nonetheless, it is real cash they’re saving that gets added to other cost-cutting initiatives.”

“The bonus is up for grabs,” he added. “Most companies are on a calendar year, and we’re not going to be having that bonus conversation until January or February of 2021.”

At Vornado, Roth’s 50 percent salary cut equates to less than 4 percent of his roughly $11.1 million in compensation from last year. At Simon Property Group, Simon’s 100 percent salary cut is about 12 percent of the $10.4 million he earned in 2019, and at CBRE, Sulentic’s 100 percent salary cut represents about 7 percent of his $13.4 million total compensation last year.

In the startup world, companies burning through cash have made similar moves. Airbnb CEO Brian Chesky and Compass CEO Robert Reffkin both gave up their salaries for the year, but because they are private companies, total compensation amounts were not available. In Reffkin’s case, the pay cut coincided with Compass laying off 15 percent of staff, or nearly 400 people, in anticipation of a 50 percent drop in 2020 revenue.

Airbnb CEO Brian Chesky and Compass CEO Robert Reffkin

Airbnb CEO Brian Chesky and Compass CEO Robert Reffkin

Earlier this month, Airbnb raised $1 billion in a new round of funding led by Silver Lake and Sixth Street Partners, a few weeks after it lowered its internal valuation by $5 billion, to $26 billion.

For some companies, slashing executive pay can free up urgently needed funds. “This allows companies to use the money in areas where immediate cash is needed, such as rank-and-file employee hardship bonuses or corporate funds to support employees,” said Amit Batish, manager of content at data firm Equilar.

That was the case with Redfin, which in late March said it would temporarily increase pay to salaried agents to help them weather the crisis, during which commission income has fallen across the industry. In conjunction with that move, the company announced Kelman’s pay cut and said the management team would forgo bonuses in 2020. Board members are also giving up cash payments this year.

“From a pure dollars-and-cents perspective, these moves help offset some of those costs,” Bob Mylod, Redfin’s chairman of the board, wrote in a letter to shareholders.

Kelman took home $250,000 overall in 2018, while at Macy’s, Gennette — the only other CEO in TRD’s analysis to forgo all of his compensation — hauled in $10.3 million last year.

JCPenney CEO Jill Soltau

JCPenney CEO Jill Soltau

At JCPenney, which is reportedly exploring filing for bankruptcy protection, CEO Jill Soltau is taking the opposite approach of many real estate and retail companies. Rather than cutting her salary, she is forsaking compensation from stocks this year. Her total compensation for 2019 was about $9.7 million, which included a $1.4 million base salary and $3.75 million in stock. That stock represented 39 percent of her compensation, but she might not be giving up much: JCPenney stock has fallen by about 80 percent in the past year to a mere 26 cents a share.


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