CEOs Take Pay Cuts

Russ Smyth, CEO of H&R Block agreed, in advance, to take a pay cut from his $950,000-a-year salary should the tax-return preparer face financial problems. More CEOs may follow suit as economic turmoil continues to hurt business, according to The Wall Street Journal.

Smyth’s contract allows the board to trim his salary when other top managers face pay cuts. Smyth says he accepted the terms because “I believe in leadership by example,” he told the WSJ.

Smyth is among a small but growing number of CEOs who are committed to earn their pay based on the performance of the company. There are also CEOs who are forgoing provisions in their contracts that would allow them to quit and collect lucrative severance payments if their pay is cut, as long as other officers’ pay is cut at the same time.

A review of some 3,200 accords by The Corporate Library for the WSJ found that at least 62 CEOs have one of these arrangements and more than half have signed such agreements since 2004, estimates Paul Hodgson, a senior research associate.

Robert Stucker, who advises CEOs during contract talks, estimates that five to 10 percent of new CEO contracts contain pay-cut provisions. Stucker, chairman of the Chicago law firm Vedder Price, says he has helped negotiate 12 such provisions for CEOs in the past six years, according to WSJ.

David Barger, CEO of JetBlue Airways, halved his $500,000 annual salary for the second half of this year after JetBlue announced a hiring freeze. Continental Airlines CEO Larry Kellner and his second in command suspended their salaries on June 1 and relinquished incentive pay for 2008, according to WSJ.

Gary E. Holdren, CEO of corporate consultant Huron Consulting Group, redirected his bonus to a company-wide pool and signed a new contract that would lower his $1.1 million salary and cut the pay of other top executives.

That change came after Holdren received $3.3 million in restricted shares, upsetting other managers.

Chairman Richard C. Breeden believes that while H&R Block executives have never taken a pay cut, performance is being highlighted.

"Everyone's pay should be linked to performance, and Block executives understand that,”  Breeden, a former chairman of the U.S. Securities and Exchange Commission, told the WSJ, adding he believes too many executive contracts "make little sense for shareholders.”