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While Millions Lost Jobs, Some Executives Made Millions in Company Stock

Even as millions of people have lost their jobs during the pandemic, the soaring stock market since the spring has delivered outsize gains to the wealthiest Americans. And few among the superrich have done as well as corporate executives who received stock awards this year.

Executives With the Biggest Gains

Corporate leaders whose stock options or grants this year have appreciated the most.




Total value of all stock options

or grants given in 2020

Appreciation

value

Current

value

William

Lynch

0

*

$64.4

mil.

$64.4

mil.

Peloton Interactive

Edward

W. Stack

$7.0

mil.

67.4

60.4

Dick’s Sporting Goods

Frederick

W. Smith

0

*

36.9

36.9

FedEx

Stéphane

Bancel

0

*

29.9

29.9

Moderna

Marc

Benioff

13.3

40.9

27.6

Salesforce

Total value of all stock options

or grants given in 2020

Appreciation

value

Current

value

William Lynch

0

*

$64.4

mil.

$64.4

mil.

Peloton Interactive

Edward W. Stack

$7.0

mil.

67.4

60.4

Dick’s Sporting Goods

Frederick W. Smith

0

*

36.9

36.9

FedEx

Stéphane Bancel

0

*

29.9

29.9

Moderna

Marc Benioff

40.9

13.3

27.6

Salesforce


Notes: *The value is zero in these cases because the company’s stock price at the time of the grant had not risen above the stock price at which the options were granted. Current value as of Oct.7.

Source: Institutional Shareholder Services

By Karl Russell

Edward W. Stack, the chief executive of Dick’s Sporting Goods, and William Lynch, president of Peloton, for example, are each sitting on paper gains of over $60 million on stock-based awards they mostly received in the first three months of the year, based on Wednesday’s closing stock prices, according to an analysis by Institutional Shareholder Services, which advises investors on how to vote on corporate matters.

And Stéphane Bancel, the chief executive of Moderna, a drug maker developing a coronavirus vaccine, received options in January that have appreciated by nearly $30 million.

The pay gains are a result of the sharp rise in the stock prices of these companies, which investors are betting are well positioned to grow during the pandemic. Another reason these stock awards have appreciated so much is that some of the grants were made when the stock market was close to its lowest point for the year. Of course, many executives are also sitting on gains on stock they got in earlier years.

But the surge in wealth also highlights how the compensation of senior executives is designed to give them enormous windfalls, which they have gotten even during one of the sharpest economic downturns in decades.

These gains are also a reminder that income and wealth in the U.S. economy are tilted heavily toward a tiny number of top earners who own significant amounts of stock. Most Americans own little or no stock, according to a recent Federal Reserve report, and many had less in savings in 2019 than they did before the last recession a decade ago.

“The stock market is not an indicator of the health of the economy for working people; it’s an indicator of economic inequality,” said Brandon Rees, deputy director of corporations and capital markets at the A.F.L.-C.I.O. “These C.E.O. payments reflect that reality.”

For decades, corporate boards have tried to tie executive pay to the performance of the company’s stock in an effort to make managers more accountable to shareholders. Yet executives still often end up doing far better than might be justified by a company’s fundamental business performance.

Mr. Stack’s compensation shows how top executives can rack up such large gains so quickly.

In March, when the stock market was close to its low point and the share price for Dick’s Sporting Goods was also at a nadir, he received 355 percent more stock options for his 2020 award than for his 2019 grant and 142 percent more restricted shares, according to the I.S.S. analysis and the company’s securities filings. (Businesses often hand executives stock in two forms: stock options or restricted shares. An option usually provides its owner the right to acquire company stock at a future date at the price it was trading on the day it was issued. A restricted share is stock that executives cannot sell for months or years.)

When asked to explain how the company arrived at Mr. Stack’s 2020 stock grants, it said in a statement: “As in prior years, the compensation committee considered a number of factors, including the company’s 2019 performance.”

Then, everything started to move in Mr. Stack’s favor. Investors, believing that Dick’s could profit in the pandemic economy and encouraged by stimulus from Congress and the Federal Reserve, bid up the price of the company’s stock. But because Mr. Stack had far more shares in the 2020 stock grants than he did in 2019, the overall value of that awards have ballooned. The 2020 awards were worth about $7 million when they were issued and are now valued at a combined $67.4 million. By contrast, Mr. Stack’s 2019 awards are worth $15 million at Wednesday’s stock price.

Of course, the gains could shrink if Dick’s stock declines. Mr. Stack can exercise and sell all his stock options only after four years. In a filing, the company said his restricted stock awards would become available over time but did not specify the period.

Still, the award raises questions. Shareholders may object to an arrangement that could give Mr. Stack compensation far in excess of what they might have expected when the stock grant was made.

“If you don’t adjust your approach when there is a shake-up in the market and your stock price is down significantly, investors are going to raise concerns,” said Brett Miller, head of data solutions for the responsible-investment arm of I.S.S. “What you don’t do is give executives more opportunities to increase their value.”

Employees may also feel left out. As Mr. Stack’s stock grant was swelling in value, Dick’s furloughed many of its employees for several weeks. In the company’s last fiscal year, his compensation was 1,487 times the pay of the company’s median employee, a measurement that includes many part-time workers. Mr. Stack has a large stake in Dick’s and controls the company through powerful voting shares.

The I.S.S. analysis covers top executives whose pay details are included in companies’ proxies, documents that publicly traded businesses file with the Securities and Exchange Commission annually. Proxies provide investors with important financial information and instructions on how to vote on corporate proposals and board appointments.

Not all executives have gains on their 2020 grants, because many companies have struggled in the pandemic. In its survey, which covers 2020 grants made by companies in the Russell 3000 stock index, I.S.S. found that 1,675 “named executive officers,” or the executives who appear in proxies, had gains while 1,388 had losses, as of Wednesday’s closing stock prices. The average appreciation was nearly $1.5 million and the average loss $827,000.

The chief executives of technology companies, many of which have thrived during the pandemic, have done particularly well. Their average gain on 2020 grants was $3.2 million, while the average loss was $543,000.

The largest combined gain in the survey was Mr. Lynch’s $64 million on his 2020 options grants from Peloton. Its stock is up 500 percent from its 2020 low.

If a company’s stock soars like Peloton’s, employee stock awards will most likely produce immediate paper fortunes. But Mr. Miller said companies could structure stock awards to reduce that likelihood if they wanted to. For example, companies can space out grants so they are not all granted when the stock is at a low or a high point.

Peloton declined to comment.

Ray Jordan, a spokesman for Moderna, said Mr. Bancel’s options vested over several years, meaning that “paper gains in a few months do not necessarily translate to long-term gains if the stock performance is not maintained.”

Some executives at companies that have been hit hard by the pandemic have still done well. In March, William J. Hornbuckle, chief executive of MGM Resorts International, gave up the remainder of his 2020 salary in exchange for restricted stock units worth $700,000, the amount of his forgone salary. After MGM stock recovered somewhat from the lows it plumbed in March, that grant is worth $1.3 million on paper — and all his 2020 awards have appreciated by a combined $4 million.

“At a time of great uncertainty when all of our properties were closed with no clear plan for reopening, Mr. Hornbuckle and several of our executives volunteered to help the company conserve cash by exchanging all or a portion of their cash compensation for the remainder of 2020 for restricted stock units that vest at the end of the year,” Debra DeShong, an MGM representative, said in a statement. “By doing so, they took on great risk, risk that still exists in that we are not operating under normal circumstances and we are still in a period of recovery.”

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People Are Panic-Buying Meat, Toilet Paper … and Pelotons?

Lauren Allbright, a teacher, children’s book author and triathlete, was antsy from weeks of sheltering in place. So last month, she “panic bought” a $2,245 Peloton bike.

It was a “pricey decision,” she admitted. But her gym was closed, and it had been raining nonstop in Richardson, Texas, where she lives. Soon the heat would make it even harder for her to train outside.

So when Texas extended its stay-in-place rules by a month, Ms. Allbright, 39, clicked “buy.” She reasoned that her husband and three children would also use the internet-connected bike, which comes with streaming classes for an extra $39 a month.

“Working out daily is huge for our mental health,” she said.

Peloton, which last year endured a rocky initial public offering and a widely mocked holiday ad, is emerging as a potential winner of the quarantine economy. While gyms, boutique studios and personal trainers have been sidelined, home workout systems are thriving.

Since mid-March, Peloton’s stock has soared 86 percent, valuing the New York company at $10 billion, or twice as much as the gym chain Planet Fitness. Last month, Peloton reported a record: More than 23,000 people had joined one of its live classes.

When Peloton reports quarterly financial results on Wednesday, Wall Street expects the unprofitable company to post rising sales. Analysts pointed to spikes in the number of ratings for fitness classes on Peloton’s system and longer waits for delivery of the bikes, which signal higher-than-expected demand. The results may not reveal the full extent of Peloton’s popularity, since they cover only a few weeks of the lockdown period in March.

“Consumer habits are fundamentally changed coming out of this crisis and this pandemic,” said Ron Josey, an analyst at JMP Securities. “A device and service like Peloton comes to the forefront in that.”

Peloton declined to comment ahead of its earnings.

Peloton’s fortunes indicate a flip side to the economic devastation that is sweeping through the United States. While more than 30 million Americans are newly out of work because of the pandemic shutdowns, many others still have the disposable income to shell out more than $2,000 for a home exercise bike.

Other home fitness companies have reported similar surges in demand. Sales at Echelon, which makes a less expensive internet-connected bike, grew five times higher than expected in the first three months of 2020, with demand comparable to Black Friday, said Lou Lentine, the company’s chief executive. Icon Health & Fitness, which owns the NordicTrack and ProForm equipment brands, said sales last month were four times as high as a year earlier.

“It’s absolutely bigger than any other boom time we’ve had,” said Mark Watterson, president of iFit, a division of Icon Health.

New converts include Ben Carlson, a wealth manager in Grand Rapids, Mich. He wasn’t interested in a home workout setup before because he exercised on lunch breaks at a gym near his office.

But now that he’s working at home with three children under the age of 6, it’s harder to get away for a run. Last month, he bought a Peloton, which he rides after his children are in bed.

The bike is “part of my new life for the time being,” Mr. Carlson, 38, said. Even when things reopen, he said, “I don’t know that I’ll be the first one to rush back into the gym.”

Gyms and studios, which have frozen memberships while they are closed, are hurting. Some yoga and dance studios have resorted to asking for donations in exchange for free online classes. Several national gym chains have faced lawsuits and state investigations for charging fees during the shutdown.

ClassPass, an online service for booking studio classes, said its revenue had dropped to nearly zero within 10 days in March. Last month, it rushed to create a virtual workout offering while laying off or furloughing more than half of its 690-person staff. It now offers 50,000 virtual classes and has waived the commission it normally takes from studios.

Mindbody, a similar service, laid off or furloughed around 700 people, or 35 percent of its work force, in early April. Rick Stollmeyer, chief executive, has said he does not believe Mindbody’s business will recover for more than a year.

SoulCycle, which operates dozens of cycling studios, closed them in March, cutting employee pay by 25 percent and furloughing its instructors. The company began offering virtual workouts on SiriusXM and through an app called Variis, operated by Equinox Group, SoulCycle’s parent company.

“Saturday Night Live” ribbed SoulCycle’s attempt to move its self-described “inspirational, meditative fitness experience” into instructors’ apartments. “I hear a lot of people talking about antibody. I am pro-body!” an instructor named Toyota, played by Chris Redd, barked.

In March, SoulCycle also began taking preorders for a $2,500 home bike that it announced last year. The bikes, available in certain U.S. cities, are expected to begin shipping this month.

“Equinox Group anticipates the consumer will want experiences both online and offline,” a spokesman said. When its studios reopen, SoulCycle said, it will make changes like placing bikes — normally packed close together — six feet apart, significantly cutting down on the number of customers per class.

Peloton initially responded to the virus by extending a 30-day free trial of its digital-only subscription to its streaming classes to 90 days. It introduced contactless delivery for its equipment and pledged to waive up to $1 million of subscription fees for customers who had lost their jobs or were unable to work because of the coronavirus. Peloton also closed 96 showrooms around the country and stopped delivering the treadmills it also makes.

Peloton and other providers of home exercise equipment are under pressure to create enough fresh digital content to keep users engaged. Among the most popular videos on Icon Health’s iFit platform are the ones that let people work out to travel montages, like a tour of Egyptian tombs.

“People use them as a mind escape,” said Colleen Logan, head of marketing at Icon Health. “In your own four walls, you don’t want to be looking at someone else’s four walls.”

Peloton stopped filming live classes in early April after an employee at its New York studio tested positive for the coronavirus. But by the end of the month, it was streaming live classes again.

The first one happened on April 22 from the apartment of Robin Arzón, Peloton’s head instructor. More than 23,000 customers logged in and rode along with her, issuing virtual high fives and climbing a digital leader board.

“When things are uncertain, we adapt,” Ms. Arzón wrote on Instagram, alongside a photo of herself surrounded by production equipment and electrical cords in her apartment.