Electronic billboard displays advice on how to cope with the coronavirus in front of a closed Macy's department store in Santa Ana, Calif., . Macy's announced Monday is furloughing most of its 125,000 employees because coronavirus-fueled store closures have caused its sales to all but disappearVirus Outbreak Macys Furloughs, Santa Ana, United States - 30 Mar 2020

The coronavirus is shining a spotlight on the class divide — as well as the old and thorny issue of executive pay.

Many corporate honchos who are used to taking home multimillion-dollar packages each year are personally adopting a new kind of austerity as they are forced to send tens of thousands to the unemployment line.  

As with everything in the often murky realm of executive compensation, the real-world impact of the changes are complicated: Ceo’s are definitely going to take a hard hit, but they don’t face the same kind of existential dread felt by many workers who live with much less financial cushion.  

But the issue of executive pay falls on an already touchy fault line in a society that’s suddenly at home (or not) and taking a close look at itself. 

The coronavirus is a threat to everyone — from the hospital orderly to hidden-away consumers to heads of governments (including British Prime Minister Boris Johnson, who was admitted to intensive care Monday). However, the economic pain is only partially being shared. 

Some of the lowest-paid workers are now on the front lines — at times providing essential services without the essential protections — while the wealthy self-quarantine in vacation homes and upper-middle-class white-collar workers log in from home. 

U.S. retail chief executive officers started delivering the bad news to workforces last week, furloughing store associates en masse as the COVID-19 shutdown forced them to keep their stores closed not just for a few weeks, but for the foreseeable future. Macy’s Inc., for instance, furloughed most of its 125,000 workforce. 

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Brands appear to have come to the same conclusion this week. Michael Kors parent Capri Holdings Ltd. said it would restructure its corporate operations to make payroll cuts while furloughing store staff, including 7,000 In North America alone. Ralph Lauren Corp. is furloughing staff as well. 

And in the process, Macy’s made clear ceo Jeff Gennette “will not receive compensation” for the duration of the crisis; Capri’s top executives, including ceo John Idol, Michael Kors and Donatella Versace, all “voluntarily elected to forgo their salary for fiscal 2021,” and Ralph Lauren is not taking his salary for fiscal-year 2021 in addition to his full fiscal-year 2020 bonus. 

(Last year, Gennette’s compensation tallied $10.3 million, while Idol’s was $14.4 million and Lauren’s stood at $22.2 million, including the value of stock awards that might never be fully realized). 

In Europe, executives are also cutting back (and able to keep employees on payrolls, either with or without their government’s help). 

Diego and Andrea Della Valle, chairman and vice chairman, respectively, of Tod’s Group, waived their remunerations for the year 2020. Hermès International’s executive chairmen are foregoing their fixed pay and the company plans to maintain the basic salary of its 15,500 employees with no government support.  

A study by executive compensation firm Semler Brossy showed that 97 companies in the Russell 3000 stock index had made reductions to ceo salary as of the end of last month in response to COVID-19. The average reduction was 67 percent. In the consumer discretionary category, 49 companies reduced ceo salary by an average of 75 percent.

John Kurtz, a partner at managing consulting firm Kearney, said there are too many exceptions to be able to say flatly that ceo’s are obliged to cut their pay.

“I do think there is an ethical imperative to think through it carefully and be guided by the stated values of the organization and by the personal values of its leaders,” Kurtz said. “Values matter. Having a decision framework that enables decisions to be guided by and consistent with the organization’s values is vital. An organization that says its people are its most important responsibility cannot easily turn around and make sweeping decisions in the other direction. Likewise, a company that talks about valuing its suppliers as ‘partners’ must think through what that means in a time of deep crisis — and not readily move away from that stance or what it implies.”

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From a leadership perspective, Kurtz said it’s important for top executives to take some pain. 

“It is immensely important as a signal to your employees and your other stakeholders who are vulnerable and impacted by your corporation’s decisions,” he said. “It is also important because it creates more room to make the difficult decisions in the first place.”

Salary, though, is just part of the picture and can amount to just one-tenth of a ceo’s total pay.

Jack Jiang, an associate professor of finance at the University at Buffalo, who has studied executive pay, said ceo’s were in for pay cuts regardless since much of their compensation comes in the form of incentive pay tied to annual financial targets that will be nearly impossible to hit now. 

“By design, they will receive less pay,” Jiang said. “To self-declare a pay cut is kind of a nice gesture, saying that, ‘Hey, we are all together.’”

And one way or another, in the context of a multibillion-dollar company that suddenly has no money coming in, it’s not going to make much difference financially if a ceo’s pay is cut or not. 

“To take a 20 percent pay cut or even a 100 percent pay cut will not necessarily affect the firm’s fundamentals,” Jiang said. “It sounds very impressive saying, ‘we are sacrificing, giving up 100 percent of our salaries.’”

Whether ceo’s earn their keep or not seems to be an argument that’s not going away.

One executive search expert noted: “Ceo pay is often a lightning rod, but there are so many more critical issues to focus on right now and in the foreseeable future. I am sure it will reemerge as a topic as the pundits conduct their postmortem on the crisis.”

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