Don’t take the media’s word for it that Norwegian Cruise Line Holdings CEO Frank Del Rio is overpaid.
Ask Norwegian’s shareholders, who rejected his compensation package by a 5.5-1 vote margin at Norwegian’s annual meeting June 16. The non-binding vote won’t keep the Del Rio from keeping the $19.7 million he got paid last year. But it was the second straight year the company’s shareholders turned thumbs down: Del Rio’s $36.4 million 2020 pay, as the industry all but foundered, was disapproved in a 5-1 vote.
“Norwegian had the lowest level of support for pay of any Standard and Poor’s 500 index company,” said Rosanna Landis Weaver, an executive pay expert at As You Sow, a non-profit that promotes corporate accountability through shareholder advocacy and litigation.
Cruise company CEO wages have become a lightning rod in the larger debate about income inequality, Weaver said. And the disparity between cruise-industry bosses and their workers is the largest in the Covid-afflicted travel sector, with the exception of a $296 million stock-based payout to Expedia Group CEO Peter Kern, the value of which 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.
Cruise Industry CEO Pay 2021
Frank Del Rio
Norwegian Cruise Line
Royal Caribbean Cruises
Cruise-industry wages are low because the companies hire heavily in developing nations, especially the Philippines, and most workers aren’t on the job for the full year. The median wage at Norwegian is $19,319, compared with $14,706 at Royal Caribbean Group and $8,658 at Carnival Corp.
Del Rio’s car allowance alone was $27,600, more than his median staffer’s total pay. His son, the company’s chief sales and marketing officer, gets a $1,200 a month auto allowance, which works out to $14,400 annually, according to the proxy.
“The question is, how is the burden of Covid being shared,” Weaver said in an interview. “Are employees and executives all suffering, or are the executives flourishing while the workers suffer?”
Norwegian declined to make senior company officials available for an interview. In a statement to Skift, the company said “the … board [of directors] values shareholder feedback and remains focused on prioritizing performance-based pay that aligns the interests of our management team with shareholders.”
BlackRock, the fund management company that is Norwegian’s second largest shareholder, also declined an interview, but confirmed the company voted no on Del Rio’s pay but approved of CEO packages at 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: Execs at Royal Caribbean and Carnival have also cashed in big. At all three, CEOs make more than 1,000 times the pay of the median worker at their companies. By comparison, airline CEOs, who were subject to CARES Act and payroll support compensation limits, made as little as 45 times and as much as 176 times the pay of the median worker, and Airbnb CEO Brian Chesky actually made less than his company’s median employee. (However, Chesky’s compensation package was $120 million in 2020.)
Cruise lines, however, kept up executive pay as their profits remained depressed and their stocks continued to crater. Norwegian shares fell 21 percent in 2021 and are down 42 percent this year.
Del Rio is not the highest-paid cruise CEO by much. At Royal Caribbean, CEO Richard Fain made $15.8 million in 2021 after taking home $12.1 million in 2020. He stepped down in January, replaced by former Chief Financial Officer Jason Liberty, who earned $13 million last year. At Carnival, CEO Arnold Donald brought home a $15.1 million package. Donald is stepping down on Aug. 1.
All three major cruise companies whose shares trade on US exchanges set out to find new metrics to judge CEO pay during the COVID pandemic, which wrought havoc on traditional benchmarks like profits and stock performance, according to their filings with Securities and Exchange Commission.
At Norwegian, discussion of executive compensation consumed 38 pages of the company’s annual proxy filing, compared with four to cover the election of directors, the other major matter voted upon at its annual meeting. The coverage of the pay 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 pay, directors relied on measures such as the pace at which the company redeployed ships, the rate of guests who caught COVID after sailing on ships that returned to service and how well the company rearranged its finances to weather the Covid storm.
By those measures, Royal Caribbean did well. The estimated 2,500 Covid cases on ships last year, out of 1.3 million guests served, represented only 0.19 percent of the total, the company said. It ended the year with $3.6 billion of what it called “liquidity preservation,” a new metric that includes cash and access to on-demand credit, after refinancing debt to lower its average interest rate by half a percentage point. It refinanced $2.3 billion in debt and returned an industry-high 85 percent of its fleet to service by year-end. Norwegian’s 57 percent was the lowest of the Big Three.
“For 2022, the short-term incentive plan for the CEO will return to the practice of being based solely on financial and objective operational metrics,” Royal Caribbean’s proxy said. “The 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 income because of Covid, its proxy statement says. Its temporary rules emphasize cash management, return to service speed, and environmental goals. The company said 61 percent of ships were back online by November.
“Management was faced with an overwhelmingly complicated set of tasks,” the company said in its proxy—beginning with understanding the epidemiology of Covid itself.
Cruise companies’ CEO pay ratios are so high partly because they didn’t take federal Covid bailout money as airlines did, which came with executive-compensation limits. But they are held down, at least at Norwegian, by an accounting maneuver that let the company boost its estimate of the median worker’s pay.
Norwegian based its estimate of the median worker’s pay on the number of days that employee might have worked in a normal year — not the number they worked in 2021, when cruise lines were shut down early in the year and reopened gradually. That led to multiplying an average daily rate of worker pay by 278 — not the undisclosed number of days the median employee actually worked.
All three cruise lines included at least some allowance for tips in the median worker’s pay as well.
Norwegian’s pro-rating of pay boosted its reported median worker comp to the highest in the group, and allowed for the big gap between its pay ratio and that of Carnival, which did not perform the same accounting maneuver.
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