Kforce Inc. CFO Bill Sanders had a $350,000 salary coming to him this year under a three-year employment contract, no questions asked. But after the Tampa-based specialty staffing company suffered a $12.1 million net loss, a 23 percent revenue plunge, and persistent stock-price weakness in 2001, he reassessed his entitlement. “The bottom line is that we were asking employees to take no bonuses and no raises,” says Sanders. As managers, “we felt we had to take at least as much of a hit” as those stakeholders.
So in a January memo, which informed employees that salaries were being frozen and bonuses all but eliminated, Sanders also announced that he and his boss, CEO David Dunkel, had accepted 25 percent cuts in their base salaries, which automatically slashes their 2002 bonus potential by 37.5 percent. While a grant of restricted stock could help ease the pain for them–along with a handful of other Kforce executives choosing similar cuts–that’s hardly money in the bank. Indeed, the stock’s recent $5.25-a-share trading price must soar to $10 by next October for the executives to break even. Based on projections, says Sanders, “this was a meaningful reduction in compensation.”
Of course, plenty of CFOs at struggling companies continue drawing higher pay, contractually or otherwise. Indeed, some profit handsomely from sticking with their companies in tough times. A $1.5 million bonus and a $1 million share grant under terms of his December 2000 contract made General Motors Corp. CFO and vice chairman John Devine the highest-paid GM executive in his first year at the carmaker, for example. (With salary, Devine raked in more than $4 million.) Further, it may be argued that finance chiefs work harder in lean years, and thus should earn more pay.
Still, more than a few finance chiefs do take one for the team. At such recession-battered companies as Acxiom Corp., Agilent Technologies Inc., and Tektronix Inc., finance executives agreed to reductions of 10 percent to 25 percent in contracted salaries for parts of 2001 and 2002. Meanwhile, the executive team of medical-equipment maker Baxter International Inc. sharply reduced its bonus pool as part of a formal plan to acknowledge management regret for a faulty dialysis product that caused the deaths of more than 50 patients worldwide. Overall, according to Mercer Human Resource Consulting’s recent survey of 350 large companies’ proxy statements, base salaries declined for 4.8 percent of CFOs with at least two years’ tenure last year, while 54 percent had smaller bonuses.
In practical terms, companies don’t save much by docking executive pay, and the stock price generally doesn’t get a dramatic boost. So what’s the benefit?
“It’s all symbolic,” says Peter Oppermann, senior executive compensation specialist at Mercer, who has recently helped five companies design executive pay reductions. “It at least gives employees the impression, and rightly so, that the senior management is not being enriched at the expense of lower-level employees; that they’re all suffering the same.”
Sanders says the Kforce pay memo, which accompanied a press release detailing management’s intention to align itself with shareholder interests, prompted several admiring calls from bankers and securities analysts who said they were impressed with management’s sympathy for workers and investors. Employees reacted positively, too, he says, “because they said it showed we were sharing in the pain.”