Shed No Tears for CEOs with Sinking Share Prices

Sometimes calendars can be cruel. A regularly reoccurring event can suddenly reoccur at a most inopportune moment. Just ask Ronald Rittenmeyer, the chief executive of Tenet Healthcare, a for-profit colossus that runs 65 hospitals and over 500 smaller care centers across the country.

Every spring about this time, the Dallas-based Tenet files its required annual shareholder proxy paperwork with the federal Securities and Exchange Commission. This spring’s filing came at a particularly awkward time for the health care giant: Tenet just happens to be furloughing thousands of health care workers in the middle of the nation’s biggest health care crisis in over a century.

Why should a required annual SEC filing make this moment so mortifying for Tenet’s top brass? Corporations have to disclose — in their annual SEC filings — exactly how much their top executives are making. And CEO Rittenmeyer has been making plenty.

Last year, the new SEC disclosures reveal, Rittenmeyer pulled down $24.3 million, a 62 percent increase over his $15 million in compensation the year before.

We have here, in other words, a massive windfall for a health care top exec and a heave-ho for front-line health workers at the same time a ferocious global pandemic rages. For a health care company, these may not be the optimal optics.

Fear not, CEO Rittenmeyer is executing a plan for regaining the corporate high road. The Tenet chief exec has announced he will devote 50 percent of his salary from April to June to a charitable fund that benefits Tenet employees in financial distress.

What noble selflessness! Or so the PR flacks at Tenet would have us believe. But reporters, fortunately, know how to read the fine print. Rittenmeyer’s salary, news reports are pointing out, amounts to “just a fraction of his total compensation.”

Indeed, that salary last year made up just 5 percent of Rittenmeyer’s over $24.3 million in pay. Based on his salary this year, his selfless contribution to employee well-being will total . . . all of $187,500.

At Tenet Healthcare and most every other major U.S. corporation, the overwhelming bulk of executive pay comes from stock-based compensation, not basic salary. This equity-based pay, the theory goes, aligns the interests of shareholders and executives. If execs do well by shareholders, they see greater rewards.

Execs deserve those greater rewards, cheerleaders for our corporate order argue, because share-based compensation puts their pay at risk. Shares can go up in price, but they can also go down.

In our current coronavirus spring, shares of Tenet’s stock have most definitely gone down, more than 40 percent since the start of the year. Rittenmeyer’s stock awards have, as a result, dropped in value.

So is Rittenmeyer going to be pocketing significantly less compensation in the years ahead? Most unlikely. Corporate boards and top execs, notes veteran CEO pay watchdog Rosanna Weaver, have become quite adept at taking the risk out of at-risk pay.

“We saw this in the 2008-2009 financial crisis,” says Weaver, who runs the Power of the Proxy program at the As You Sow shareholder advocacy group. “Some companies that used to do a regular grant of ‘x’ number of shares to executives all of a sudden — at the very bottom of the market — went to a dollar value and granted what amounted to a higher number of shares.”

For executives, a lucrative shift. Suppose, for instance, a CEO has a pay deal that grants 1,000 shares of stock. But this particular year those shares have sunk considerably in value, from $1 million to $500,000. The company has an unhappy CEO. But the company can make that CEO considerably happier by switching the award to granting a higher number of shares based on the original cash value of the previous year’s grant.

These options or restricted stock units are granted at a cratered share price, enabling executives to hit the jackpot down the road when the shares increase in value.

“That is certainly,” says Weaver, “something to watch here in the coronavirus crisis.”

Corporate boards and CEOs have plenty of other ways to game the system as well, and they also have a self-righteous justification for playing these games and keeping CEO compensation forever elevated. Executives should not be penalized, the corporate line goes, for events — like a global pandemic — obviously beyond their control.

But this “beyond their control” argument, Weaver points out, only seems to surface when executives stand to lose compensation.

“Sometimes,” she explains, “things outside of an executive’s control have an upside.”

One example: The Trump Tax Cuts and Jobs Act enacted late in 2017 has meant extra billions on the balance sheets of the nation’s biggest corporations.

“But I’ve never read a proxy statement where a corporate board says, boy, the Tax Cuts and Jobs Act, which was outside of our control, meant that we did really well this year, and it wouldn’t be fair for the executive to get a bonus based on that,” says Weaver.

“If we’re talking about fair,” she adds, “the people whose compensation I worry about not being fair aren’t CEOs. They’re underpaid junior high teachers and grocery store workers. It may be unfair that some CEOs might not get big bonuses because of the pandemic. But it’s so much more unfair that people are dying because they don’t have paid sick leave. I have little sympathy to waste on CEOs.”

At Tenet Healthcare last year, CEO Rittenmeyer took home 452 times the pay of the typical Tenet worker. This year, under the latest coronavirus relief legislation just signed into law, some of the tax dollars those Tenet workers pay will be going to corona-crushed hospitals across the nation. Hospitals will pocket $75 billion in all. Will these tax dollars end up boosting the pay of CEOs at for-profit hospital chains?

Last month, lawmakers in the Congressional Progressive Caucus tried to decouple coronavirus relief from CEO windfalls. They wrote into pending corona relief legislation a provision that would have required corporations receiving corona dollars to pay their top execs no more than 50 times the pay of their most typical workers. The House of Representatives never had a chance to vote on that limit.

The latest corona bailout bill doesn’t include that CEO pay limit either. The next one should. An even better idea: Let’s deny all tax dollars to companies that pay their execs unconscionably more than their workers. In times of pandemic and beyond, a step like that would bring some serious fairness closer.

Sam Pizzigati co-edits Inequality.org. His recent books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Follow him at @Too_Much_Online.