No More Layoffs with a Payoff: It's Time to Freeze CEO Salaries
joanwestenberg.com
joanwestenberg.com
If the company is really struggling so much, the CEO can do even more right by the shareholders by cutting their own pay. After all they're more responsible than anyone else for the company being in that situation.
The article isn't arguing layoffs shouldn't happen. It's stating that they should be a shared sacrifice. If the CEO personally benefits in the short-term by laying people off their interests are in conflict with long-term shareholders' interests. So align those interests better - make it so the CEO doesn't personally benefit from layoffs. Only the other shareholders do. Specifically:
"freeze CEO pay and stock options and prevent stock sales for a year following any layoffs that exceed 5% of the workforce."
If they still "do right by the shareholders" when it doesn't line their own pockets, then fair enough. It was really necessary.
The CEO is the main strategy and vision guy at the company. They're supposed to be able to foresee market shifts. If they don't do that, why do they deserve to be paid so well? Because they negotiated so hard with their golf buddies on the board?
It's a one-year pay cut, not the end of the world.
> or that those employees were truly redundant.
Maybe. In that case, the long term increase in stock price should make up for any short-term pay cuts, right? The CEO will benefit eventually too.
Businesses have natural expansion and contraction cycles. New products are built and iterated on with a hope of finding product market fit, but most of these endeavours fail.
I am paid to make the hard decisions. Sometimes that hard decision is to scale down the workforce. Yes, it sucks, but a large majority of those impacted end up financially ahead (rehired quickly and one, two or three months ahead because of the redundancy payout).
Penalising a CEO for making hard decisions is a great recipe for stagnant companies. What would have happened to Kodak or Blockbuster if they had a CEO with enough grit to cut the workforce and pivot the businesses before they collapsed?
The situation they were both in, if the CEO had just cut staff and taken a windfall bonus then there wouldn't be the cash to pivot. Because thats what we are talking about here.
It would have taken a couple of years to pivot successfully, so they should be compensated a couple of years after the layoffs not firing workers and taking their salaries as a bonus before quiting.
The CEO would have made less money for a few years while the turnaround was in progress. If it succeeded, the stock would take off and they'd profit handsomely. I don't see the problem with these incentives.
Let's remember again, the proposal from the article:
"freeze CEO pay and stock options and prevent stock sales for a year following any layoffs that exceed 5% of the workforce"
What you don't want is a CEO dumping the stock when it goes up after the layoff. That's a conflict of interest. And if the company needs to do layoffs to conserve cash, the CEO and rest of the leadership taking pay cuts will also help the shareholders.
And like why not? Maybe you'd see the CEO try harder to find these people alternative roles, instead of immediately discarding them the minute guests got comfortable with pushing buttons themselves. An elevator operator could retrain as a bellman, janitor or housekeeper, something in the kitchen, maybe the front desk.
Sometimes you can reshuffle people inside a company and find jobs where they are more productive. But sometimes you can't.
The OP did not care about these distinctions. If a CEO fires people, he should get a pay cut.
That’s why requiring massive CEO pay cuts when they engage in mass layoffs would be a good thing. It would help remind them that layoffs are a failure and the buck stops with them.
But second, they do care. Even if they shouldn't.
I was laid off 2 years ago. I was given all the opportunities to find another internal job. I send my resume to a number of managers. I didn't hear back. Why? Because the CEO told the managers to ignore me? I doubt that. The managers, knowing about all the likely advantages of internal hires (I was familiar with the infrastructure, with the culture, I had a network, etc) decided to not hire me.
The company went out of its way to improve my experience. They know it's not fun for people to be laid off, so they did the best they could to soften the blow. I was paid for 4 months, and I was officially still on the pay-roll for 3 months (i.e. I was still covered by the health insurance, I did not need to get COBRA). I received free coaching from a consulting company, to assist me with improving my resume and interviewing skills. The company pays for former laid-off employees to come and tell their story to the freshly laid-off. The company even continued to match my 401k for the 3 months I was not working, but officially still on the payroll.
My experience was very positive. Of course, I can't generalize, I'm sure other people felt differently.
But here I am. A guy who had gone through the experience of being laid off, and who defends the rights of CEO's to lay off people, if that's in the best interest of their company.
Again let's be clear, no one's saying CEOs don't have the right to lay off people. You're arguing against a strawman.
Even the article doesn't say that. It says the CEO should not personally benefit financially immediately after a layoff. It's a clear conflict of interest. Not just with other employees but, more importantly, with other shareholders. Do you believe in good corporate governance, free of corruption and self-dealing?
CEOs in particular must always act in the best interests of the company and its shareholders, even when it's contrary to their own interests. This is one such example. The type of person who won't lay people off when it's necessary solely because they'll lose their bonus, is fundamentally a bad CEO. You don't ever want that person in charge. A company that would appoint that kind of person deserves to fail.
The CEO shouldn’t have the right to arbitrarily lay off people. They should have to go through substantial formal procedures to do so, much more than the United States makes them go through now.
Furthermore, _Chrysler v Ford_ was not actually a precedential legal decision at either a federal or state level, and we need to stop treating it as such—and we need to stop treating it as morally correct, too, since it’s not morally correct to put profit-seeking above all other concerns in any way.
AFAICT it wasn't any kind of decision. Are you thinking of Dodge v Ford?
> it’s not morally correct to put profit-seeking above all other concerns in any way
Dodge v Ford held that companies are run for the benefit of shareholders. Future court decisions further clarified that "benefit" isn't the same as profit. As I wrote in this comment 8 months ago:
> The Supreme Court said as recently as 2016: "Modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not...More to the point, corporate directors are protected from most interference when it comes to running their business by a doctrine known as the business judgment rule. It says, in brief, that so long as a board of directors is not tainted by personal conflicts of interest and makes a reasonable effort to stay informed, courts will not second-guess the board’s decisions about what is best for the company — even when those decisions predictably reduce profits or share price."
Sounds more like you love the taste of their boot than that you’re any sort of good economist.
I'm just someone who is very good at their job. I'm better at what I do that 99% of the people. But in my previous job I wasn't. They did me a favor that they let me go. I was lucky and I found quickly another job where I happened to be a very good fit.
The experience of being laid off and then finding a much better job is not unique to me. It's not universal, but it's not that rare either.
In a world where the barriers for firing people are high, lots of people will find themselves stuck in jobs they hate. I'm sure you will disagree, you'll say that people are free to go and look for another job at all times. But that's just theory. In practice only a small minority of people do that. Most will just suffer through a bad job, because they have bills to pay, kids to feed, etc. This is just a fact.
The solution to that isn’t to cheer on layoffs. The solution is to establish a good social safety net—especially when it comes to housing and healthcare—so people don’t have to either do a job they hate or die in the gutter.
When you were laid off with lots of assistance, preserved insurance, compensation, etc. from your employer, you experienced what life is like with such a safety net. However, it was mostly provided by your employer as a perk rather than by society as a social good; the rules on what employers have to provide in the US at least are very lax.
What’s maddening about opposition to providing this society-wide is that doing this would also reduce companies’ administrative overhead (HR costs would plummet without tying healthcare and retirement to employment), and would make it easier to entice good people away from their existing jobs by reducing risk.
The simple fact is that the oligarchs running corporate America really want serfs, not free agents, and they’re the ones who fight doing this society-wide even though it costs them far more to do it the way it’s done now.
If the CEO fires more than 5% of the people. If a business needs to move some people around or eliminate a handful of jobs sometimes, it's no big deal. Beyond a certain threshold, it becomes a big deal. It means the company has missed the boat on something, or the economy has turned, or something else equally bad.
Whatever the reason, it means the company needs to reduce expenses and everyone who is still at the company needs to work harder, with redoubled vigor, so that the company can get back on track. This is exactly the worst time to give the CEO outsize rewards both financially, and due to what it does to everyone else's morale.
Instead freeze all C-suite pay increases, eliminate their bonus, no new stock grants, and no selling stock they already own for at least a year. If their efforts work out that stock will be worth even more later. If they don't, can they argue that it was unfair?
Shareholder capitalism has fucked up the minds of so many people (especially Americans) where they think the purpose of a company is to extract maximum value for the shareholders. Sorry, no. The purpose of a company is to either a) fulfill their mission to the best of their ability (which is never “maximize shareholder value”), or b) provide quality goods/services at a fair price.
why do you think you have authority for such declaration?
Intel's and Boeing's past CEOs and arguably Google's current CEO for example did not justify their pay by any stretch of the imagination while their company's fundamentals tanked. Like many CEOs they coast on brand and monopoly effects. Google used to be seen as the AI leader for example. Intel's and Boeing's decline is becoming a national security concern for USA.
Instead, it seems CEOs just get to keep the carrot, while the fallout from their poor decisions falls on everyone else. What kind of performance incentive is that?
Perhaps the CEO learned from their mistakes and is still the right leader, but their compensation structure should be forward-looking enough that if they steered the company this far wrong along the way, then their pay incentive will naturally reflect that poor outcome. But it seems that, for example, Boeing's ousted CEO has made quite the fortune despite presiding over history-making damage to shareholder interests.
Edit: As I understand it, he's out if the board thinks they will recruit someone who would have done better.
they probably got lots of lower quality employees during aggressive hiring period, so make sense to cut some fat.
Pretend that "salary" means "total compensation". The article covers stock too:
"freeze CEO pay and stock options and prevent stock sales for a year following any layoffs that exceed 5% of the workforce"
> mostly stock grants and other stuff that is taxed at lower rates than wage income
False. Income is income and it's taxed like income.
Now if you were to say that companies do funny stuff like hiring a company owned by the CEO for "consulting" services in order to funnel some of the CEO's compensation there, I'd believe you. But otherwise, no. Options, grants, perks - it's all W2 income and taxed that way.
au contraire