CEO-Bonus Scrutiny Grows as Millions Paid Out Even in Down Years

Discovery Inc.’s earnings fell nearly 20% last year by some measures, but the entertainment company’s CEO still got $26.4 million in performance bonuses.

Hospital giant HCA Healthcare Inc. disregarded earnings results from Covid-19’s crushing initial months in giving its CEO a $3.5 million annual bonus.

And Coca-Cola Co. admitted the pandemic made its executives’ performance-incentive targets impossible to reach—but gave its CEO a 2020 bonus of nearly $1 million anyway.

Many companies stack the deck in ways that often help their executives get big annual bonuses no matter how the business performs, Bloomberg Tax research shows. They “adjust” and boost the earnings numbers they use, or lower their own performance goals—making it more likely they’ll hit the targets that trigger bonus awards.

“There are so many ways to game the system,” said Nell Minow, vice chair of ValueEdge Advisors, a corporate-governance consulting firm. “It’s absolutely atrocious.”

The tinkering is legal, but often it’s poorly disclosed and hard for investors to see. Corporate-governance advocates are pushing the Securities and Exchange Commission to require companies to spell out more about how they calculate the financial metrics they use for bonuses, and how executive pay is tied to performance more broadly.

“All we’re asking for is transparency,” said Simiso Nzima, managing investment director of global equity at the California Public Employees’ Retirement System.

Companies skew the bonus process to help their executives get the best possible pay package and don’t think about leaving for another job, some governance advocates and executive-pay experts say. But catering to the executives like this— critics of executive pay contend—can make companies less responsive and accountable to their shareholders.

As the 2022 proxy season kicks into high gear, investors should be on their guard for such maneuvers that sweeten compensation packages, the critics say.

“The annual bonus has become almost an entitlement, a routine part of pay, and it shouldn’t be,” said Rosanna Landis Weaver, wage justice and executive pay program senior manager at As You Sow, a shareholder-advocacy group.