January brought numerous headlines of pay cuts for CEOs at America's largest companies, a call for which has intensified in healthcare.
Although the CEOs who made headlines for reduced pay packages year-over-year are outside of healthcare, the trend runs parallel to changes that healthcare professionals and consumers have called for in hospital and health system C-suites throughout the pandemic.
Apple CEO Tim Cook took a pay cut of more than 40 percent for 2023 from one year prior. His target total compensation is $49 million — a $3 million salary, $6 million cash incentive and $40 million in equity awards.
Goldman Sachs Group CEO David Solomon saw his 2022 compensation cut by 29 percent to $25 million — a $2 million salary, $6.9 million cash bonus and $16.1 million in restricted stock. The bank's compensation committee cited the "challenging operating environment" as a deciding factor for the pay reduction. Similarly, Morgan Stanley lowered CEO James Gorman's compensation by 10 percent to $31.5 million for 2022, with directors attributing the change to "a challenging economic and market environment" with the performance of the firm "not as strong as the prior year."
Toward the end of 2022, AMC Entertainment Holdings CEO Adam Aron recommended that the company's board freeze his pay, or "red circle and freeze both my target cash and target stock pay for 2023," as he put it in a series of Dec. 27 tweets.
While particular circumstances may differ in deciding each of the above changes to CEO pay, there are correlations worth noting, namely those between CEO pay cuts, layoffs and company performance.
More than 58,000 workers have been affected by job cuts at U.S. technology companies so far in 2023, according to a tally maintained by Crunchbase News. Goldman Sachs and Morgan Stanley cut jobs in late 2022 and early 2023, as well — up to 3,200 and 1,600, respectively. In instances like this, cutting CEO pay can serve as a gesture of camaraderie for employees left behind, a willingness to share the pain.
"This is a show of solidarity. CEOs need to share the pain," Nell Minow, vice chair of ValueEdge Advisors, which advises investors on corporate governance matters, told CNN.
The Goldman Sachs and Morgan Stanley examples show boards tying company underperformance as reason for revised pay packages at the top of the C-suite — a link that is not always made clear or visible.
"That's exactly the way pay is supposed to work," Ms. Minow told CNN. "The problem with pay traditionally is it's been all upside and no downside. CEOs would often get all the credit and money for good times and then blame El Nino or some extraneous force for the downside. Now they are being forced to accept more responsibility."
Across all industries, CEO pay has catapulted in recent years. From 1978 to 2021, CEO pay based on realized compensation grew by 1,460 percent. In 2021, the average CEO earned $27.8 million. Setting an all-time record, CEOs in the U.S. earned 399 times more than the typical worker in 2021, and CEO pay continues to spike, according to a report from the Economic Policy Institute.
Among hospitals, staffing shortages, employee dissatisfaction and financial challenges have sharpened the scrutinous lens through which industry professionals and consumers view executive pay. Earlier in the pandemic, as hospitals and lawmakers urged federal authorities to investigate travel staffing agencies for price gouging, some travel nurses reciprocated and said such scrutiny should actually be redirected toward health systems' executive pay.
2022 was the worst year for hospital finances since the start of the pandemic, with approximately half of U.S. hospitals finishing the year with a negative margin. Now systems are looking to cut costs with renewed attention on labor. A fall 2022 report based on responses from 86 health system leaders found 46 percent said labor costs are the largest opportunity for cost reduction — up significantly from the 17 percent of leaders who said the same a year prior.
Regardless of whether one sees executive pay as appropriate or too high, its variation across settings is real. A 2022 analysis by the Lown Institute of more than 1,000 hospitals found the gap between hospital CEO pay and average worker pay varied widely, with some CEOs paid twice the rate of other workers, while the highest paid received 60 times the hourly pay of general workers. Hospitals in urban settings and those that held teaching status were associated with higher executive hourly compensation compared to general worker wages.