MIAMI — Perhaps no industry was as badly battered by the pandemic in 2020 as the cruise industry, with business in the U.S. — its most lucrative market — banned for 9 1/2 of the year’s 12 months. To cope, the three largest companies stopped paying employees on their ships, cut marketing expenses and worked furiously to raise as much debt and equity financing as possible.
The strategy worked out for executives at the three largest and publicly held cruise companies: Carnival Corp., Royal Caribbean Group and Norwegian Cruise Line Holdings. Even as the companies faced record losses in the billions, company boards rewarded CEOs with multimillion-dollar payouts. Carnival CEO Arnold Donald and Norwegian CEO Frank Del Rio made more in 2020 than in 2019. Only Royal Caribbean Chairman and CEO Richard Fain was paid less in 2020 than in 2019.
“CEOs don’t lose,” said William Lazonick, professor of economics emeritus at the University of Massachusetts. “Unfortunately, what we’re seeing during the pandemic is business as usual. It will be these employees who are the last ones to see what they once had restored.”
Uniquely, Del Rio’s pay doubled to $36.4 million — 2 /2 times the national median CEO compensation for the year, according to The Wall Street Journal — and around three times the pay of his counterparts at his larger competitors. According to filings with the Securities and Exchange Commission, Norwegian lost $4 billion. The company, valued at $11.2 billion, has a total of 28 ships operating under the brands Norwegian Cruise Line, Regent Seven Seas and Oceania Cruises and has 34,000 employees.
A spokesperson for Norwegian Cruise Line Holdings said Del Rio’s pay reflects business effects of the COVID-19 pandemic, the U.S. government’s decision to ban cruises to Cuba, and an employment agreement extension.
“We believe these changes were in the best interests of the company and secured Mr. Del Rio’s continued invaluable expertise and critical industry relationships to drive our recovery from COVID-19,” the spokesperson said via email. “In responding to the pandemic, our management team took quick decisive action to reduce costs, conserve cash, raise capital and extend debt maturities and amortization, and remain focused on executing our road map to a healthy, safe relaunch.”
Thanks to low interest rates and profit-hungry investors, the cruise companies were able to borrow large sums of money on relatively favorable terms, shoring up enough funds to last through a cruise-less 2021.
Norwegian Cruise Line Holdings finished the year with cash and cash equivalents of $3.3 billion. Investors who bet on the company’s high-yielding debt issued last year — and that of its competitors — are likely to see a handsome payoff. The index showing the spread between junk bonds and U.S. government debt has now fallen to below pre-crisis levels, signaling that the risk of investing in the cruise companies has dissipated now that new cruises are in sight.
Carnival Corp., the world’s largest cruise company, lost $10.2 billion and paid CEO Donald $13.3 million, according to SEC filings. The company, valued at $33.1 billion, has a total of 88 ships operating under the brands Carnival Cruise Line, Princess Cruises, Holland America Line, P&O Cruises (Australia), P&O Cruises (UK), Seabourn, Costa Cruises, AIDA Cruises and Cunard and has 69,000 employees. Carnival Corp. finished the year with $9.5 billion in cash and cash equivalents.
Royal Caribbean Group, the world’s second-largest cruise company, lost $5.8 billion and paid CEO Fain $12 million, according to SEC filings. The company, valued at $22.3 billion, has a total of 58 ships operating under the brands Royal Caribbean International, Celebrity Cruises and Silversea and has 85,000 employees. Royal Caribbean finished the year with $3.7 billion in cash and cash equivalents.
The crew members on the companies’ ships had a very different fate. The same companies decided to stop paying crew members on their ships when the cruise industry shut down in March 2020 and continued to charge them for basic supplies like shampoo and soap. Some crew members waited up to 10 months at sea to be repatriated — in some cases, due to restrictions in their home countries — and had to pool funds from their family at home to purchase goods on board. Many, including entertainers, plumbers, cooks, cabin stewards and engineers, remain furloughed.
The disparity is another blow to the cruise ship workforce, which hails mostly from developing countries.
Keeping an executive on board who can weather a time as turbulent for the cruise industry as the COVID-19 pandemic can be a challenge for companies, said Luis Navas, founder and senior partner of Global Governance Advisors, who advises companies on executive pay.
“No matter how you cut it, it’s still a lot of money to 99% of the population,” he said of the cruise executives’ payouts. “I’ve been doing this for 30 plus years; it never stops ceasing to affect me to say this is a lot of money. On the flip side, if you look at what happened in the last year ... these are multibillion-dollar companies, the CEO, COO those are jobs they could go to other industries. They are transferable skills. They can make good money going somewhere else.”
All three CEOs were applauded for making temporary cuts to their salaries. Del Rio’s 2020 salary at Norwegian was reduced 15% from 2019. Donald’s salary at Carnival dropped 43% and Fain’s salary at Royal Caribbean dropped 49%.
But salaries made up just an average of 5.3% of total executive compensation at the three firms, outweighed by millions of dollars in the form of stock awards, and in the case of Norwegian’s Del Rio, a bonus of $2,824,495.
“Reductions in base pay are token and cynical gestures that try to varnish the reputation of the CEO but are not real,” said Kirk Hanson, senior lecturer emeritus in business ethics at Stanford University Graduate School of Business. “In other cases there are real efforts made by executives to hold down their compensation in order to provide funds for others and not to appear they are taking advantage of the suffering of others.”
All three companies shrank their staffs considerably. Before the pandemic, the companies collectively employed about 24,000 people who worked on land in the U.S. and abroad and 201,000 people on ships. In 2020, the number of shore workers employed by the three companies around the world dropped 12% to 21,200 and ship employees dropped 17% to 167,000 according to the companies’ financial filings.
Though the companies are headquartered in South Florida, where their executives live, they are incorporated in Panama (Carnival Corp.), Liberia (Royal Caribbean Group) and Bermuda (Norwegian Cruise Line Holdings), and flag their ships in foreign countries. This absolves them of U.S. labor restrictions including the 40-hour work week and minimum wage. The minimum wage for seafarers, set by the United Nations’ International Labor Organization, in 2020 was $625 per month.
Even before the pandemic, the three cruise companies reported their CEOs made hundreds of times as much as their median workers, according to their financial filings. In 2019, Carnival reported a CEO-to-median worker pay ratio of 723-to-1, Royal Caribbean 830-to-1, and Norwegian 1,052-to-1. The ratios, all calculated slightly differently, are at least three times higher than the average CEO-to-worker granted compensation ratio at big companies in 2019, which has exploded since the 1980s, according to the Economic Policy Institute.
For two cruise companies, the CEO-to-worker pay ratio increased during the pandemic. Norwegian reported Del Rio made 1,188 times the median employee at the company, and Royal Caribbean reported Fain made 1,395 times the median employee at the company.
Only Carnival Corp. closed the gap slightly. The company reported Donald made 490 times the median employee in 2020.
Company boards have long argued that ballooning executive payouts are necessary to keep CEOs on staff. But there are limits.
In March, Starbucks shareholders rejected the company’s executive compensation proposal, which included a CEO-to-worker ratio of 1,211-to-1 and a $1.86 million bonus for the CEO. The rare say-on-pay vote rebuke is nonbinding but can hurt a company’s reputation, said Navas.
Navas said he was surprised by Norwegian’s approach, including the $2.8 million bonus for Del Rio, and would not recommend it to his clients. Norwegian’s annual meeting is on May 20.
“I don’t think you can think of an industry that has been battered so much,” he said. “A board wants to be very sensitive about how they approach compensation.”
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