So this might seem like an odd time for the board to vote to give itself a nice raise and to dole out nearly $2.5 million in special bonuses for four senior executives. The special-payout program unveiled in July by Morehead, Kentucky-based AppHarvest isn't unusual—companies on the ropes often do this, saying it prevents a hemorrhaging of talent—but the negative headlines it generated across that state should serve as cautionary tale for companies trying to navigate treacherous times with minimal reputational damage.
Shareholders and other stakeholders have become somewhat inured to executive pay packages in the tens of millions of dollars, but they start to get cranky when they see the pay roll in for top brass at a time when other constituencies are suffering.
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The board and top brass of Netflix experienced pushback in June, when the company's executive compensation plan—which doled out $166 million to six top executives in 2022—garnered just 27 percent shareholder support. The vote was purely advisory, but it was an embarrassing drubbing nonetheless, and one the Writers Guild of America (WGA), which is on strike in a quest to win higher compensation for its members, had encouraged.
"While investors have long taken issue with Netflix's executive pay, the compensation structure is more egregious against the backdrop of the strike," WGA West president Meredith Stiehm wrote in a letter to Netflix shareholders. "If the company could afford to spend $166 million on executive compensation last year, it can afford to pay the estimated $68 million per year that writers are asking for in contract improvements and put an end to the disruptive strike."
On its website, compensation consultant Pearl Meyer cautions companies to be vigilant to avoid "the many executive pay landmines," which become even more difficult to step around when a company is ailing. For example, while Pearl Meyer acknowledged the business logic behind doling out special payments to executives of ailing businesses, it noted that doing so "in turbulent times may be met with heavy skepticism by creditors and the general public."
In an interview with Louisville TV station WDRB, University of Louisville finance professor Charlie Moyer said AppHarvest's payouts could be perceived as a savvy business move or as a money grab.
"If these people have the expertise to turn this thing in a way that there is light at the end of the tunnel, keeping them around is important," he said. "On the other hand, if you are a shareholder, a shareholder might view it differently: that this is a way for them to line their pockets from a deal that is going sour."
From: Law.com
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