Don’t take the media’s word that Norwegian Cruise Line Holdings CEO Frank Del Rio is overpaid.
Ask the shareholders of Norwegian, who rejected his compensation package by a margin of 5.5 votes to 1 at Norwegian’s annual meeting on June 16. The non-binding vote will not prevent Del Rio from keeping the $19.7 million it received last year. But it was the second year in a row that the company’s shareholders had refused: Del Rio’s $36.4 million salary in 2020, when the industry was on the brink of collapse, was disapproved by a vote of 5 against 1.
“Norwegian had the lowest level of compensation support of any company in the Standard and Poor’s 500 index,” said Rosanna Landis Weaver, executive compensation expert at nonprofit As You Sow. which promotes corporate responsibility through shareholder advocacy and litigation.
Cruise line CEO salaries have become a lightning rod in the broader debate over income inequality, Weaver said. And the disparity between cruise industry bosses and their employees is the largest in the Covid-hit travel sector, except for a $296 million stock payout to Expedia Group CEO Peter Kern, whose value was inflated by a near tripling of the company’s share price between Kern’s April 2020 appointment as CEO and the end of last year.
Salaries in the cruise industry are low because companies hire heavily from developing countries, especially the Philippines, and most workers aren’t on the job all year. The median salary at Norwegian is $19,319, compared to $14,706 at Royal Caribbean Group and $8,658 at Carnival Corp.
Del Rio’s car allowance alone was $27,600, more than his employee’s median total salary. His son, the company’s sales and marketing director, receives a car allowance of $1,200 a month, which equates to $14,400 a year, according to the power of attorney.
“The question is how the burden of Covid is shared,” Weaver said in an interview. “Do employees and managers all suffer or do managers thrive while workers suffer?
Norwegian refused to make senior company officials available for an interview. In a statement to Skift, the company said that “the… board of directors [of directors] values shareholder feedback and remains focused on prioritizing performance-based compensation that aligns the interests of our management team with those of shareholders.
BlackRock, the fund management company that is Norwegian’s second-largest shareholder, also declined an interview, but confirmed the company voted against Del Rio’s salary but approved CEO packages from Royal Caribbean and Carnival.
Norwegian lost $982.7 million in the first quarter of 2022 and $4.51 billion last year.
But Del Rio has company: the leaders of Royal Caribbean and Carnival have also cashed in big. In all three cases, CEOs earn more than 1,000 times the salary of their company’s median worker. By comparison, airline CEOs, who were subject to the CARES Act and payroll support compensation limits, earned as little as 45 times and up to 176 times the median worker’s salary, and the CEO of Airbnb’s Brian Chesky actually earned less than his company’s median employee. . (However, Chesky’s overall compensation was $120 million in 2020.)
Cruise lines, however, kept executive pay steady as profits remained depressed and stocks continued to tumble. Norwegian stocks have fallen 21% in 2021 and are down 42% this year.
Del Rio is by far the highest paid cruise CEO. At Royal Caribbean, CEO Richard Fain earned $15.8 million in 2021 after winning $12.1 million in 2020. He stepped down in January, replaced by former chief financial officer Jason Liberty, who earned $13 million dollars last year. At Carnival, CEO Arnold Donald took home a $15.1 million package. Donald resigns on August 1.
The three major cruise lines whose shares trade on U.S. stock exchanges have set out to find new metrics for judging CEO compensation during the COVID pandemic, which has wreaked havoc on traditional benchmarks such as earnings and stock performance, according to their filings with the Securities and Exchange Commission.
|CEO||Company||Payment (all inclusive)|
|Franck Del Rio||Norwegian cruise line||$19.7 million|
|Richard Fain||Royal Caribbean Cruises||$15.8 million|
|Arnold Donald||carnival society||$15.1 million|
At Norwegian, discussion of executive compensation consumed 38 pages of the company’s annual proxy filing, compared to four to cover the election of directors, the other major issue voted on at its annual meeting. Coverage of the compensation ratio between Del Rio and the median worker alone consumed 11 paragraphs and bullet points.
At Royal Caribbean, which also devoted nearly 40 pages of its proxy to explaining executive compensation, directors relied on metrics such as the pace at which the company redeployed ships, the guest rate who caught COVID after sailing on ships that returned to service and how well the company reorganized its finances to weather the Covid storm.
By these measures, Royal Caribbean has done well. The estimated 2,500 Covid cases on ships last year, out of 1.3 million passengers served, was just 0.19% of the total, the company said. It ended the year with $3.6 billion of what it called “liquidity preservation,” a new measure that includes liquidity and on-demand access to credit, after refinancing debt. to lower its average interest rate by half a percentage point. It refinanced $2.3 billion in debt and returned 85% of its fleet to service, an industry high, by the end of the year. Norwegian’s 57% was the lowest of the Big Three.
“For 2022, the CEO’s short-term incentive plan will revert to the practice of relying solely on financial and objective operational metrics,” Royal Caribbean’s attorney said. “Long-term incentive awards granted in 2022 are based on quantitative financial and operational metrics.”
Carnival also scrapped CEO pay standards tied to metrics like operating profit because of Covid, its proxy statement says. Its temporary rules emphasize cash management, speed of return to service and environmental goals. The company said 61% of ships were back online in November.
“Management faced an extremely complicated set of tasks,” the company said in its proxy, starting with understanding the epidemiology of Covid itself.
Cruise line CEO pay ratios are so high in part because they didn’t take the federal Covid bailout money like the airlines did, which came with caps on pay from leaders. But they are being held back, at least at Norwegian, by an accounting maneuver that allowed the company to raise its estimate of median worker wages.
Norwegian based its estimate of the worker’s median wage on the number of days the employee could have worked in a normal year – not the number they worked in 2021, when cruise lines were closed at the beginning of the year and gradually reopened. This led to multiplying the average daily rate of pay for workers by 278 – not the undisclosed number of days the median employee actually worked.
All three cruise lines also included at least an allowance for tips in the worker’s median wage.
Norwegian’s proportional pay split propelled its median worker compensation to the highest of the group and allowed for the wide gap between its pay ratio and that of Carnival, which did not perform the same accounting maneuver.