Why do companies typically choose to implement layoffs affecting numerous employees rather than considering salary reductions for top executives like the CEO?
In: Economics
Most top executive have many years experience in the industry and probably know how their particular company works, understands the broad market and know how to develop mid to long term strategies. They are quite vital for the future of a company and are generally very hard to replace. It costs a company a lot of money and resources to train and retain their knowledge.
It makes a lot of sense (financially and for the future) to reduce cost by laying off the more easily replaced employees – those that do more routine tasks and don’t require as much training and don’t have skills necessarily critical for success.
And costs tend to scale with numbers. So it isn’t simply the salaries that can be saved when many people are laid off. For the US, broadly, for each $1 of salary, the company pays an additional 20-40% in taxes and benefits for lower level employees. Then there is the cost of rent, utilities, computers, furniture and support staff (HR, finance,…). So the savings multiply. There are generally not that many high level executives so these savings are not as significant.
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