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CEOs from firms laying off the most employees in last 2 years are making the most money. Thoughts?
A study released by the Institute of Policy Studies title, "CEO Pay and The Great Recession", noted that CEOs of the 50 firms that laid off the most workers since the start of the economic crisis earned nearly $12 million on average in 2009 - 42% more than the average pay of CEOs at S&P 500 firms as a whole.Some would say that layoffs are a way to cut costs and minimize losses/boost profits, thus improving performance translating into higher pay for the CEO. Others would argue that there is a social responsibility from major corporations to find a balance between avoiding layoffs and fighting for the bottom line. What is your opinion on this finding?
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4 Answers
Alex, here are some things to think about with respect to CEO pay, employment, and productivity...
1. If the 50 firms that laid off the most workers are, on average, larger than the typical Fortune 500 company, then you could argue that the CEOs should be paid more just based on the size of their companies. I'm not arguing that this is "right". I'm also not saying that is in fact the case. But it is worth determining before you say this is "right" or "wrong".
2. One thing that is certain is that as a society we use financial results, most often earnings, to gauge the success of a business. For larger companies, we typically use stock prices to measure the value of a business. Until that changes we should fully expect CEOs to optimize their businesses to hit earnings targets that investors will examine to drive stock prices higher or lower. One tool that a company can use to hit an earnings target is a layoff. There are certainly flaws with this system, but I generally believe it has served us well. For an alternative view, you should head over to Umair Haque's blog at the Harvard Business Review.
3. For me, the most important thing to consider here is actually more of a macro-economic/policy issue: do we want our economy to yield employment or productivity improvements? Most economists believe there is a trade off to be made between these two things which does raise interesting policy questions around things like wealth redistribution. Most economists also believe that productivity is more important as it tends to lead to higher standards of living in the aggregate. That's something to think about when assessing whether the pay vs layoff figures you cite are just or unjust.
I have my own personal opinions on this issue that I'd be happy to share if you want, but was more interested in establishing a framework to help us think about this issue.
Scott
It's easy to show an increase in profits when you lay-off people. They are typically the most expensive cost to a company. However, did these CEO's and their exec-teams really solve the problems that may have plagued their orgs?
I worked for a company that after 7 years of constant lay-offs, still couldn't "fix" their supply chain and product offering issues which was causing their losses. Of course laying off folks was the quick and easy fix.
If the money saved from laying off workers are called profits, we are the ones providing them with a job. They are simply following the economic trend of what other companies who have a genuine need to do so.
With the layoff of workers, what basis do we argue based on organization performance and productivity? Layoff of workers means existing workers are overworked, taking over the workload that is left behind. Of course to re-begin with a lite staff force facing the same or more equivalent amount of workload, productivity and performance naturally reflect higher on a statistical basis. Any CEO would be proud to project such a positive figures in a financial crisis situation.
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