Why do companies typically choose to implement layoffs affecting numerous employees rather than considering salary reductions for top executives like the CEO?
In: Economics
This question ignores the cost scale of a large workforce.
Let’s say you have 1 million workers earning an average salary of $50,000. Your payroll is $50 billion. But, that’s not the end of the costs.
You likely have another $10,000 in benefits and $3,825-$5,000 in taxes. In addition, you’re probably carrying $1,000-$3,000 in expenses just for employing them.
Now you’re looking at $68 billion in payroll, benefits, and other variable costs.
Now let’s assume you have a CEO that makes $10 million/year.
Assume for a minute that they’d work for free or you could just fire them.
You could raise everyone’s pay by $10/year, or $0.38 per pay period.
Keep in mind that I’m not making a justification of the $10 million.
Now, let’s say executive compensation is compressed like it is in the federal government.
Outside of a few federal agencies that can pay higher wages, this is what your pay could be:
– Non-supervisory GS-14: $172,075
– Supervisory GS-15: $183,500
– Career Senior Executive Service: $141,022-$195,000/$212,100
Go on federal employee subs and you’ll find that many people actually don’t want the responsibility of the GS-15 or SES role for that little additional money.
Now there’s a couple questions that we need to ask.
– How much more pay is worth it to the worker?
– How much more does the employer have to pay to get the right people to take those senior roles without constantly looking for their next role?
– How much pay is too much pay?
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