The best way for CEOs to keep bonuses in a downturn: Lower expectations

When Apple set performance targets for fiscal 2025 for CEO Tim Cook and his executive team last year, the board set goals at or below the prior year’s result, citing “trade policy” and an “uncertain macroeconomic outlook.” As my colleague Amanda Gerut points out, that essentially guaranteed that Cook would take home a $12 million bonus, no matter how well he did. (Apple handily surpassed the modest targets.)

With wobbly markets, rising oil prices, war and fears of a global recession, keep an eye on compensation packages. What I look for:

Reduced targets—In an analysis of 50 public companies by Compensation Advisory Partners (CAP), published Friday, researchers found that boards set lower targets, wider performance curves and flatter payout ranges to protect CEO pay last year. The result: Pay rose 8% and bonuses were up 4% in the group while revenue rose slightly and earnings were down. CEOs collected 87% of their target bonuses, up from 77% in 2024.

Selfless rhetoric—While good times are ‘me’ time, bad times are all about ‘we.’ When taxpayers rescued big banks during the 2008 financial crisis, some characterized this as privatizing the gains and socializing the pain. But in bad times, few are above turning to the government for support. If you’re not too big to fail, you might be mission-critical, a social good or a bulwark against China. Masters of the universe become ordinary people blown by the winds of fate when those winds are in their face.

Blame—Dexin Zhou of Emory University published a fascinating study in 2014 called The Blame Game, in which he analyzed 70,000 earnings transcripts to track leaders who blamed factors in the economy or their industry for poor results. Those who blamed external factors deflected attention from themselves were less likely to be fired than those who held themselves accountable for the results. When times are bad, it seems, the pain doesn’t start at the top.

Contact CEO Daily via Diane Brady at diane.brady@fortune.com

Top leadership news

Meta plans to cut 20% of staff

Mark Zuckerberg is reportedly planning to cut 20% of Meta’s staff, joining other tech companies making massive headcount cuts. Bernstein analyst Mark Shmulik says the cut could result in up to $4 billion in savings this year and up to $8 billion next year, but worries other companies will move too fast to replicate those results, leading to "hurried pivots" and "half-formed strategies."

When to decide if an AI pivot is the right call

For some companies, integrating AI isn’t always the right call. Kayla Doan, who helps companies assess whether AI integration will be effective, says doing so only makes sense half of the time. AI can cost too much, change what a company does, or carries too much risk with hallucinations.

McDonald's $3 menu and the K-shaped economy

McDonald’s is reportedly launching a new $3 value menu as the fast food chain tries to attract lower-income consumers squeezed by persistent inflation. The move underscores the emergence of a “K-shaped” economy, where poorer individuals are getting hit by rising unaffordability more than their wealthier peers. 

The markets

S&P 500 futures are up 0.5%, following a 0.3% gain on Monday. Japan’s Nikkei 225 is up 2.9%, South Korea’s KOSPI is up 5%, and Hong Kong’s Hang Seng Index is up 0.6%. Korean chipmakers Samsung and SK Hynix jumped by more than 7.5%. Chinese AI startups MiniMax and Zhipu AI surged by almost 20%. India’s NIFTY 50 is up 1.0%; the STOXX Europe 600 is up 0.4% in early trading. Bitcoin is just above $74,000.

Around the watercooler

Ray Dalio warns a brutal ‘final battle’ for the Strait of Hormuz is coming—and losing could end the American empire by Eva Roytburg

A gaming CEO asked ChatGPT how to avoid paying a $250 million bonus. It didn’t work by Catherina Gioino

Scott Galloway wants the stock market to crash. Gen Z is already betting like it will by Nick Lichtenberg

Nvidia’s Jensen Huang thinks $1 trillion won’t be enough to meet AI demand—and he’s paying engineers in AI tokens worth half their salary to prove it by Jake Angelo

America’s economy is so bad that it’s driving a loneliness crisis, as two-thirds skip weddings and dinners to make ends meet by Sydney Lake

Today's edition of CEO Daily was compiled and edited by Joey Abrams, Nicholas Gordon and Lee Clifford.