Recontracting CEO Compensation

Using novel data on companies' midyear pay actions taken in response to COVID-19 disruptions, I find that 30% of firms reduced CEOs' base salaries. Salary reductions served to "share the pain" with stakeholders. CEOs suffering salary cuts, however, often saw lower targets for annual and long-term incentive awards. I find evidence of some rent-seeking activities. Importantly, changes in long-term incentive awards, which increased total pay levels but not pay-for-performance sensitivities, received strong shareholder dissent, suggesting that boards are concerned about CEO retention while investors favor pay-for-performance alignment, the latter of which is validated by a major state pension fund's disclosure of its vote rationale