Singapore's DBS bank cuts CEO's pay by $3 million. Why this is significant

Singapore’s DBS Group slashed its chief executive officer (CEO) Piyush Gupta’s pay by S$4.1 million ($3.05 million) due to last year’s digital banking disruptions. This comes even as Singapore’s largest lender saw a record profit in 2023 and its fourth quarter earnings surpassed expectations. It is not common for top executives to bear the financial brunt in case of shortcomings. So, why did DBS Group cut its CEO’s pay? Why is it significant? DBS slashes CEO’s pay DBS Group Holdings said Wednesday (7 February) that the variable pay for CEO Gupta and other members of the group management committee has been reduced to “hold them accountable” for multiple digital disruptions last year. Gupta took a cut of 30 per cent in annual variable compensation, reported Reuters citing the bank. The DBS group management committee collectively saw a 21 per cent reduction in variable compensation from the previous year. This came even as the bank’s net profit jumped 26 per cent to a record SG$10.3 billion last year compared to SG$8.19 billion in 2022. Gupta was one of the highest-paid CEOs in the city-state in 2022 when he received S$15.4 million, consisting of a salary of S$1.5 million, a cash bonus of S$5.77 million and deferred remuneration in cash and shares of S$8.04 million, reported The Straits Times. [caption id=“attachment_13701352” align=“alignnone” width=“640”] DBS CEO Piyush Gupta’s variable pay was slashed by 4.14 million Singapore dollars. Reuters File Photo[/caption] Last March, the digital services of the bank were hit for nearly 10 hours during which users could not access online banking services or make trades through its brokerage. The Monetary Authority of Singapore had called the outage “unacceptable”, saying the lender had “fallen short of expectations.” Another disruption was reported in October. Gupta had apologised to customers at the time and said the bank was addressing the issues “with utmost priority.” Speaking to CNBC, Jun Rong Yeap, market strategist at online trading platform IG, said the pay cut of top management could be well-received by investors. “The cuts may also help to offset some of the higher compliance costs, higher operational costs and costs set aside to enhance system resiliency and limit its overall impact on their earnings.” DBS shares rose nearly 3 per cent on Wednesday, reaching its highest level in about one month, as per CNBC.  Why the pay cut matters As previously mentioned, CEOs do not always take pay cuts for mistakes or inconveniences caused by the company. Thus, Gupta’s reduction in variable compensation despite the bank making profit stands out. Several sectors, especially tech, have seen mass layoffs in the past few years. These job cuts are expected to continue even this year. This raises the question of why the highly paid executives do not take pay cuts to save some of the jobs. An Oxfam report released last year found that top CEOs around the world, including India, got a real-term pay hike of 9 per cent in 2022, even as mid-career employees took a 3 per cent pay cut during the same period. As per a Business Insider report, there are several reasons why executives do not bear the financial burden. Trimming down the salary of executives would not make much of a difference to the company in terms of costs as compared to sacking thousands of employees. Moreover, replacing these top executives is tough due to fierce competition. Companies facing cost pressure do not want their leaders to switch at such a time by cutting their pay, the report added. Recently, some CEOs announced they were forgoing a part of their salary amid layoffs. Zoom Video Communications Inc. founder Eric Yuan said he would reduce his salary and forgo a bonus after sacking 1,300 employees. Twilio Inc. said its CEO Jeff Lawson’s base salary would be cut by about half to $65,535 following a 17 per cent reduction of its workforce. However, for most executives, salary comprises only a small portion of their total compensation, which is heavily reliant on stock awards and options, noted Bloomberg. Pratik Vaidya, MD and CVO of Karma Global told People Matters, “One key element is stock holdings, which often constitutes a significant portion of income for top-level executives. This means that CEOs have a cushion to fall back on, one way or another, due to the diversified nature of their compensation structure”. Some CEOs, under pressure from the public, have pledged to take pay cuts amid economic uncertainty. Apple CEO Tim Cook publicly called for reducing his stock grant by half, to $40 million. His base pay of $3 million and bonus of $6 million remained unchanged. In January 2023, Google CEO Sundar Pichai said top executives would take a pay cut that year under the company’s cost reduction measures. Notably, he had received $218 million in equities in 2022 through a triennial stock grant. [caption id=“attachment_13701362” align=“alignnone” width=“640”] Google CEO Sundar Pichai said last year that top executives will take a pay cut. Reuters File Photo[/caption] When companies cut executive and staff salary, and downsize their workforce, its share prices usually rise. Several tech companies, including Zoom, saw a stock price surge after announcing layoffs. Meanwhile, researchers at Vienna University of Economics and Business found that employees are more likely to put extra time and efforts when the boss forgoes salary for their benefit. “Employees also work harder when their boss sacrifices salary to help others”, Forbes reported citing the study. With inputs from agencies