{"id":9538,"date":"2022-09-18T08:00:00","date_gmt":"2022-09-18T00:00:00","guid":{"rendered":"https:\/\/dollarsandsense.sg\/business\/?p=9538"},"modified":"2022-09-18T08:30:13","modified_gmt":"2022-09-18T00:30:13","slug":"sea-leadership-cuts-compensation-why-do-companies-cut-the-pay-of-their-top-management","status":"publish","type":"post","link":"https:\/\/dollarsandsense.sg\/business\/sea-leadership-cuts-compensation-why-do-companies-cut-the-pay-of-their-top-management\/","title":{"rendered":"Sea Leadership Cuts Compensation: Why Do Companies Cut The Pay Of Their Top Management?"},"content":{"rendered":"\n

Sea Ltd is reportedly cutting compensation for its top management, including its CEO. According to Bloomberg News which saw the internal memo, Sea\u2019s leadership team will not take any cash compensation until the company reaches self-sufficiency. This comes as Sea struggles with a perfect storm of declining market value, rising interest rates, increasing inflation, and a volatile stock market environment.<\/p>\n\n\n\n

This isn\u2019t the first instance of a company CEO cutting compensation (nor will it be the last). However, the question is why would top management cut their own compensation?<\/p>\n\n\n\n

Read Also: 5 Employee Benefits You Can Offer Your Staff Without Giving A Pay Raise<\/a><\/em><\/strong><\/p>\n\n\n\n

Past Examples Of Top Management That Have Cut Compensation When Their Companies Face Severe Headwinds<\/strong><\/h3>\n\n\n\n

During the start of the pandemic, many companies faced severe headwinds as the pandemic and its resultant lockdowns took its toll on the economy.<\/p>\n\n\n\n

The severe impact on aviation caused SIA to implement cost-cutting measures such as staff p<\/a>ay cuts in 2020. This included a 35% pay cut for CEO, 30% pay cut for executive vice-presidents, 25% pay cut for senior vice-presidents, 15% pay cut for vice-presidents and divisional vice-presidents, and 12% pay cuts for managers and senior managers.<\/p>\n\n\n\n

Likewise, the CEOs of the 3 largest banks (DBS, OCBC and UOB) in Singapore were cut by 8.2% to 24.3% in FY2020 as the banks experienced lower earnings during that period of the pandemic.<\/p>\n\n\n\n

Read Also: 10 Types Of Employee Payments (Apart From Salary) That Businesses Need To Pay CPF For<\/a><\/em><\/strong><\/p>\n\n\n\n

This practice of cutting leadership compensation is also seen in other countries. A Fortune<\/a> analysis found that 657 companies listed on the Russell 3000 publicly announced the intention to cut the base salaries of their chief executive in 2020. Only 512 followed through with the pay cuts. Despite publicly announcing pay cuts, 135 companies had their CEO base pay increase (117) or remain the same (18). In fact, the median compensation for Russell 3000 CEOs increased 3.4% in 2020.<\/p>\n\n\n\n

Thus, public announcements of pay cuts may not actually translate to an actual reduction in compensation. Companies may change or reverse their positions due to changes in the market environment or when headwinds turn to tailwinds.<\/p>\n\n\n\n

CEO Compensation Is Often More Than Base Salary<\/strong><\/h3>\n\n\n\n

The other aspect to consider when looking at CEO pay cuts is whether the cuts are to base salary or to total compensation. This is important because CEOs are often compensated not just in salary and bonuses but also in stock options and stock ownership.<\/p>\n\n\n\n

For example, with 2020 bank CEO pay cuts, the base salary for these CEOs was untouched, but the pay cuts were a result of cuts to bonuses, share awards and other benefits. Whereas, for SIA, the pay cuts are to the base salary. For SEA management, the proposed cut is to cash compensation.<\/p>\n\n\n\n

The other consideration is the benefits that top management receives. Top management may enjoy lavish benefits such as business class travel, luxurious hotel stays for business trips, and meals and entertainment reimbursement.<\/p>\n\n\n\n

For Sea Ltd, the cost-cutting measures to help the company achieve positive cash flow as soon as possible also include cutting away frills and excessive benefits. The company will cap business travel to economy class flight fares, limit travel meal expenses to $30 a day, hotel stays to $150 a night, and cull reimbursement for meals and entertainment bills.<\/p>\n\n\n\n

Cutting CEO Compensation Sends A Signal To Employees<\/strong><\/h3>\n\n\n\n

Whether the CEO takes a 100% or a 10% pay cut, cutting CEO compensation is likely to have minimal effect on the company’s bottom line. However, it does have an outsized effect on employees.<\/p>\n\n\n\n

For SIA, having the top management take a larger pay cut than middle- or lower-management and non-management staff sends a signal of solidarity to the rest of the company. The higher cuts to top management make the cuts feel more equitable even if they do not have the same impact in absolute numbers.<\/p>\n\n\n\n

Likewise, SEA\u2019s proposed pay cuts would go a long way to restoring the company\u2019s public image which has been tarnished by the rescindment of job offers by Shopee, Sea\u2019s e-commerce arm. Amidst the adjustments to hiring plans, job cuts and project shutdowns, cutting CEO compensation signals Sea\u2019s commitment to cost cutting and top management\u2019s drive to focus on profitability. Limiting the pay cuts to top management may also help retain (or even improve) the morale of existing employees, even amidst cost-cutting.<\/p>\n\n\n\n

Read Also: 10 Types Of Company Benefits That Employees Have To Pay Income Tax On<\/a><\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"It’s more about the signal it sends to employees and shareholders\n","protected":false},"author":11,"featured_media":9539,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[364],"tags":[1528,1529,1527,162,917],"yoast_head":"\nSea Leadership Cuts Compensation: Why Do Companies Cut The Pay Of Their Top Management? | DollarsAndSense Business<\/title>\n<meta name=\"description\" content=\"Sea's top leadership not taking any cash compensation until the company reaches self-sufficiency. 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