Michael Rapoport and Nicola M. White write about the tricks, dodges, and obfuscation compensation committees use to hike CEO bonuses unrelated to performance. VEA Vice Chair Nell Minow is quoted: “There are so many ways to game the system,” said Nell Minow, vice chair of ValueEdge Advisors, a corporate-governance consulting firm. “It’s absolutely atrocious.”

Discovery Inc.’s earnings fell nearly 20% last year by some measures, but the entertainment company’s CEO still got $26.4 million in performance bonuses.Hospital giant HCA Healthcare Inc. disregarded earnings results from Covid-19’s crushing initial months in giving its CEO a $3.5 million annual bonus.And Coca-Cola Co. admitted the pandemic made its executives’ performance-incentive targets impossible to reach—but gave its CEO a 2020 bonus of nearly $1 million anyway.Many companies stack the deck in ways that often help their executives get big annual bonuses no matter how the business performs, Bloomberg Tax research shows. They “adjust” and boost the earnings numbers they use, or lower their own performance goals—making it more likely they’ll hit the targets that trigger bonus awards.“There are so many ways to game the system,” said Nell Minow, vice chair of ValueEdge Advisors, a corporate-governance consulting firm. “It’s absolutely atrocious.”The tinkering is legal, but often it’s poorly disclosed and hard for investors to see. Corporate- governance advocates are pushing the Securities and Exchange Commission to require companies to spell out more about how they calculate the financial metrics they use for bonuses, and how executive pay is tied to performance more broadly.“All we’re asking for is transparency,” said Simiso Nzima, managing investment director of global equity at the California Public Employees’ Retirement System.

 

Companies skew the bonus process to help their executives get the best possible pay package and don’t think about leaving for another job, some governance advocates and executive-pay experts say. But catering to the executives like this— critics of executive pay contend—can make companies less responsive and accountable to their shareholders...

But cases in which companies move the bonus goalposts are far from rare. While performance bonuses are typically awarded based on whether earnings hit certain targets, corporate boards have wide latitude to decide which measures of earnings are used, how they’re calculated, and how the targets are set.

One example of an adjustment: Norwegian Cruise Line Holdings Ltd., which gave its CEO Frank Del Rio a $3.6 million incentive bonus for 2020 even though the company lost $4 billion in the same year.