Why do companies typically choose to implement layoffs affecting numerous employees rather than considering salary reductions for top executives like the CEO?
In: Economics
So, let’s say you’re the local state administration of In-And-Out Burger, a burger chain that isn’t franchised, but controlled through the central office.
A few years ago, your business was expanding. You opened a bunch of new locations, and brought on new staff. But, since then, there’s been a pandemic, and inflation. People aren’t coming in as often.
So, the first thing you do is shrink shifts. The old lunch rush needed 4 people, but with demand down, 3 is enough. Cutting manager pay to keep the 4th person doesn’t make sense if three is enough, so you cut the fourth person instead.
Then, of course, the numbers still look bad in a few towns. A few locations are too close together. You close one or two. Again, it doesn’t make sense to cut your pay instead – cutting the workers actually reduces the amount of services available, but cutting your salary instead leaves the waste of an oversaturated market intact.
Your salary is only going to be cut if HR undercuts you with a cheaper manager. They’re likely to do that, if business is very stable and they just need a day to day administrator. So, they might give you a bonus for good work on terminations, then replace you with a lower level worker.
So basically, they only cut manager pay when their management needs go down, and cut employees when any other need does, like from a drop in customers meaning fewer staff needed to get through the rush.
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