Why do companies typically choose to implement layoffs affecting numerous employees rather than considering salary reductions for top executives like the CEO?
In: Economics
The simple answer is because the executives are the ones doing the layoffs and are unlikely to give themselves a paycut in the process.
There are situations where CEOs will accept effectively zero pay for their work but this is mostly a publicity stunt.
Steve Jobs took a salary of $1 every year from 1997 to 2011. However, during this time his stocks increased from $17.5 million to $2.2 Billion showing that his executive salary was a joke by comparison…
Executive salaries and total compensation is usually attached to the stock price, by laying people off the stock price will likely rise giving the executives effectively a bonus. This can seem cruel (and it is to the employees) but it’s considered the right thing to do for the shareholders and shows off one of the majors flaws in the Corporate system.
It’s also important to note that while laying off workers usually increases the stock price, firing a CEO or top level executive lowers the stock price.
Asking executives to take a pay cut will often cause them to leave or be forced to be paid out golden parachutes. Since Executive salaries are high across the industry you also will struggle to hire quality replacements at a lower salary.
The executive salaries are also not that significant in the grand scheme of things.
HP for example laid off upwards of 6,000 workers recently. If we assume the average salary was 50k on the low end that’s $300,000,000 in salary let alone associated benefits, training, etc.
Where-as the CEO of HP has a listed salary of $20 million, which while still the equivalent pay to 400 low level employees it’s still a kick in the bucket compared to the layoffs.
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