Rare stock tweak adds millions to a potential payout for CEO

Raytheon Technologies, one of the country’s biggest defense contractors, recently cut salaries for thousands of employees as the pandemic crimped business. Around the same time, it also quietly made a change to the pay package of its chief executive, Gregory Hayes, that could increase his future income by millions of dollars.

On May 29, after the market closed, Raytheon disclosed in a filing that it had tweaked how it calculates certain stock-related payouts owed to senior executives and employees. The filing did not state by how much Hayes or others stood to benefit.

The change led to an estimated $12.5 million gain for Hayes on his recent equity awards, Raytheon later told The New York Times. The company said the change was necessary to ensure that Hayes and 3,900 employees — about 2% of its workforce — did not lose compensation they had already been awarded.

But some analysts said the change undermined Raytheon’s commitment to use pay to keep executives’ interests in line with those of shareholders. Publicly traded companies have come under pressure to structure stock-related compensation in a way that creates incentives for executives to improve long-term performance and not just seek to enrich themselves in the short term.

The median boss received compensation of $18.6 million in 2018, an increase of 6.3% from the previous year, according to a study conducted by Equilar for The New York Times last year. Ordinary wages of company employees rose far less.

The rare stock-related awards that Raytheon amended were part of Hayes’ compensation when he was chief executive of United Technologies. In late 2018, United Technologies said it would spin off two units — Carrier, a heating and cooling equipment business, and Otis, which makes elevators — and last year agreed to merge its remaining aerospace business with Raytheon. Hayes took over as the chief executive of the combined company.

Raytheon representatives say they made the rare adjustment for the sake of fairness.

In addition to pay cuts of 10%, Raytheon is furloughing many of its 195,000 employees and cutting billions of dollars in costs. Hayes has also volunteered to take a 20% pay cut — but to his $1.6 million salary, which is a small part of his pay package.