No executives at Crown Zellerbach got a bonus this year. Top executives at Inland Steel took unspecified pay cuts, while middle managers will not get the scheduled cost-of-living increase Aug. 1.
The top six officers at B. F. Goodrich received a 15 percent cut in pay, and other executives lost 10 percent. Salaried employes had their salaries reduced 5 percent. U.S. Steel suspended payouts from its bonus plan and cut executive salaries between 5 and 25 percent.
Even the oil companies like Exxon and Mobil, under the crush of lower demand for their products, are looking for ways to reduce white-collar pay.
The pinch of the recession, which has been felt at the factory level for nearly a year, is working its way into the executive suite. Even if the economy picks up later this summer, as many economists expect, executives likely will continue to feel an income pinch long after laid-off workers begin to be recalled and freezes or squeezes on white-collar salaries are eased.
That is because bonuses, or incentive compensation, are an increasingly important source of income for the highest-paid officers of companies, but in most cases are tied closely to the previous year's profit performance.
Even though the economy weakened appreciably in late 1981, the first six to eight months of the year were good enough that many companies recorded respectable profits and paid normal bonuses early this year. But profits in many industries have sagged so sharply this year that the anticipated economic recovery will not generate high enough profits to offset the early year declines.
Thus, many corporate executives can look forward to reduced bonuses next year.
"Even in the best of years about 10 percent of executives receive no bonuses, another 20 percent get bonuses of about the same size as the year before, and the rest get an increase," according to David J. McLaughlin, national director of the compensation arm of the Hay Group, a management consulting firm.
"But this year the percentage receiving increased bonuses will be 40 to 50 percent" rather than 70 percent, McLaughlin said. The rest will get no bonuses or smaller awards, he said.
Furthermore, he said, salary increases for executives are slowing.
Last year, compensation for top officers in U.S. corporations rose about 10 percent. This year it will be in the 5 to 6 percent range, and executive salaries will grow even less next year.
But it is the reduced or eliminated bonuses that will hit executive wallets the hardest. For many corporate executives, the annual bonus, generally paid in January or February, is not a gift from the employer but an essential ingredient in their overall compensation--which also includes salary, benefits, stock options and the like.
"In the past 10 years, bonus payments have risen faster than salaries," according to John Moynahan, vice president of the management consulting firm Towers, Perrin, Forster & Crosby. Bonus payments usually are related not only to a company's profits, but also to individual executive performance. Companies like bonuses because they presumably give executives an incentive to perform better, and because they are, in effect, delayed salaries that permit the firm to hold the cash longer.
But because they depend on profits--usually a company has to earn a minimum level of profits before bonuses are paid--in bad years the bonuses are not tantamount to delayed salaries. They are salary cuts.
Philip Caldwell, chairman of Ford Motor Co., earned nearly $905,000 in 1979, $500,000 of which was a bonus. Last year Caldwell took home $450,000--about half what he earned in 1979 even though his salary has gone up $70,000. Ford, like the other auto makers, has been hit hard by the recessions of 1980 and 1981 and hasn't paid a bonus to any executives since 1979.
Conrad Greim, director of compensation at Crown Zellerbach, said that in 1981 the company did not make the 6 percent return on equity required to trigger the bonus plan. As a result, 260 executives at the San Francisco-based wood and paper products company did not get their delayed salaries. In normal years, bonuses account for as much as 40 to 50 percent of total compensation for Crown Zellerbach's top executives and 15 percent for its lower-level officers.
The steel industry, like the paper industry, has been hard hit by the current recession, but Inland Steel usually has come through recessions better than most of its competitors. This year, however, burdened by the high costs of a billion-dollar modernization, Inland has been burned by the slowdown in demand for steel. About 350 of its top executives as well as its directors have taken salary cuts, with higher-paid officers taking proportionately bigger trims. Inland will not specify the size of the cuts.
The situation at U.S. Steel is so dire that the company already has announced that it is suspending its bonus plan. Most other steel companies--including Bethlehem, Inland and National--aren't expected to do well enough this year to pay bonuses.