CEOs Who Fire More Workers Earn More

An analysis of executive pay found that CEOs of the 50 firms that laid off the most workers since the beginning of the economic meltdown earned 42% more than the average pay for an S&P 500 company. Correlation doesn’t imply causation, but it’s food for thought, especially for those in the bread line.

CEOs that lay off workers earn more: study [MarketWatch]

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  1. Torgonius wants an edit button says:

    That’s because $50k worth of people off the books looks better on a corporate balance sheet than $50k of something else. So it looks like the company is doing better, and the CEO gets rewarded.

    • DariusC says:

      Or just 50k of the balance sheet looks good so they get rewarded… give more work to less people and tell them they are lucky to have that job. CEO Wins, Employees Lose.

      • TuxthePenguin says:

        *sigh*

        Even if we assume a pay period crosses a Month-End, laying off $50k worth of employees (annually) wouldn’t reduce your Accrued Compensation line item by anywhere close to that. Really, it’d be 4.1k (50/12).

        It would reduce your income statement for the year by $50k plus payroll taxes and benefits…

        • DariusC says:

          My apologies for not realizing the accounting rules. I just assume that not spending 50k in a year means you literally have 50k more to spend if things do the same from year to year. I guess taxes would play into that but… oh well. lol.

          • Gulliver says:

            Taxes and the other thing not mentioned is benefits (medical, vacation time, sick days, etc). The other dirty secret is companies do not want good people doing work, they want cheap people. If you have a person who has done the job for 20 years he is too expensive, so it is better to hire a cheap college graduate.
            People ask why customer service is what it is in the US, it is because we demand CHEAPER CHEAPER CHEAPER. We gave up our right to ask for quality when people choose Wal Mart as the place to shop. People have voted for cheaper over quality or service.

    • TuxthePenguin says:

      That really doesn’t make any sense. If I reduce $50k in hourly/salary expense, that’s pretty much the same on my income statement than if I reduced printing/postage costs by $50k. The difference in the different subtotals might cause some differences, but I’m not sure if there are any real mainstream Wall Street-ish metrics that use Compensation in anything. I could be wrong, but most analysts don’t look at IS, just ratios.

      • Alvarez says:

        “…The difference in the different subtotals might cause some differences…” I’ve just gone cross-eyed.

      • FredKlein says:

        That really doesn’t make any sense. If I reduce $50k in hourly/salary expense, that’s pretty much the same on my income statement than if I reduced printing/postage costs by $50k.

        But how do you cut printing/postage costs? Refuse to stamp every tenth letter and force the postoffice to deliver them anyway?? Of course not. But you can fire one person and make everyone else in that department work harder.

        Fae it, it’s easier to fire someone (and make everyone else work harder) than it is to constantly keep an eye on how much your company is spending on postage or electricity or heat or….

        • jvanbrecht says:

          Lets see, you can reconfigure your printing settings on all the workstations to enforce double sided printing by default, get rid of the banner page that identifies the printer, replace old printing equipment with more efficient printers, reduce the number of printers and make people walk slightly further…

          That alone has the potential to reduce printing costs by 30% to 50%… so your statement makes no sense.

          As for postage, that one I do not know anything about.

          You remove an employee who is performing a function that enables the company to potentially bring in more money or function better. Obviously this is not always the case, but when it comes to layoffs, sales staff generally get hit last.

          But when you start removing employees, sure your books show less finances on payroll, but the service the company provides suffers, which could result in customer defections.

          It’s a domino effect. I am not saying that there should be no layoffs, sometimes, when there is no money to pay people, companies have no choice, but I think that upper management should be the ones to take massive pay cuts before you start letting go of the little people.. Communism.. I know… :)

    • sonneillon says:

      I think a better explanation is a more cut throat and ruthless CEO is going to get paid higher. CEOs who will fire anyone and everyone to help themselves are just that and they will use any trick and leverage against prominent shareholders and the board to advance themselves. This is more a symptom than a cause.

  2. Eat The Rich -They are fat and succulent says:

    Workforce reduction is the classic method for attaining quick bottom line results when CEO’s need to show profits. Unfortunately, it is also a short lived solution if the company is not sound or is in trouble. Usually reductions in force translate into poorer long term performance.

    However, usually any negative effects from the above won’t be felt until the CEO who did them has bailed out with his/her golden parachute. That is why having a revolving door at the top is a horrible business plan. It is also why CEO pay should be tied firmly to success on a 5-10 year plan.

    However good luck getting any short sighted board to go along with that.

    • cromartie says:

      HA! Ridding the workforce of overpaid littles worked out just great for me.

      Sincerely,

      Philip Schoonover

    • Warren - aka The Piddler on the Roof says:

      Well spoken, sir. Tying CEO compensation to performance is a great idea, but it probably won’t happen until the gravy train runs out of track. Hopefully it’ll be soon.

    • Gulliver says:

      Tying to performance is the holy grail. If it is tied to yearly or quarterly performance you get ENRON. Cook the books, or put of spending until the next quarter and not reinvest in the companies future. Here is a truism in any business. Higher sales hides a lot of sins. I prefer a CEO with a sales background over a bean counter. If you have higher sales your fixed costs per unit go way down.

  3. TuxthePenguin says:

    I’d like to see more of it, but if why the top 50 companies that laid off workers? Why not the top 40? 60? 100?

    Ah, I think I might know… from the article…

    “The left-wing Institute for Policy Studies…”

    • chaesar says:

      50 is a good round number, that’s why

      yeah that’s the Wall Street Journal for you, the second word in the article is “left-wing”

      • TuxthePenguin says:

        The point I was making is you’re taking the top 50 of (I assume) the S&P 500 in pretty much any category, I would bet you’d find a relative difference against the entire S&P 500. I just base that on the way statistics work and the way businesses are run…

        But, one thing in the article I like:

        “The group is pushing for legislation that would either incentivize companies that don’t compensate executives more than 100 times the income of the company’s lowest-paid worker, or for Congress to revisit a proposal that passed the Senate last year that would have capped total pay for employees at bailout companies at $400,000.”

        Well, technically there are two things there. The first is an interesting concept – how would you incentivize them? Tax breaks? Its has to be monetary (as you couldn’t relax regulations) and I don’t see the government cutting checks any time soon…

        But the last part… capping the pay. The last thing you want to do is build a structural disadvantage into a company. If I were a great CEO worth $15 million (as in my insights added that much over the course of a year) but willing to take $5m, why would I even consider lookign at a company that can only pay $400k?

        • OnePumpChump says:

          So don’t put a hard cap on pay. Just dictate that compensation be structured in a way that rewards long-term success for the company.

          If that means most CEOs take a pay cut, what does that say about those CEOs?

          • TuxthePenguin says:

            That sounds great! I’d love a compensation scheme that manages to reward long-term growth… what is it going to be? How about we roll that out for the rank-and-file too?

            The problem is people want certainty. Most people are risk averse. They’d rather than $45 than risk a 50/50 chance at getting either $100 or 0. C-level executives are the same way. Workers are the same way. So if you do want to tie in some long-term bonus, its going to be HUGE. So many factors can screw a company that they has nothing to do with. I could be rocking my job as the CFO of Apple, but if Jobs dies in a car crash and the stock takes a nose dive… I’m screwed. I’ll take that experience to my next job and demand that the upside be higher or the risk be smaller (ie, instead of a 5-year look, it’ll be 4 or 3).

            That’s the problem – all these sound bites sound GREAT! But when you try to put them into action, the law of unintended consequences kicks your butt…

            Case in point, look at union contracts. RARELY do they include profit-sharing provisions. That would make sense for a union – work with the company to get even more profitable, earn more money. Nope, they’d rather have the guaranteed cash. And I don’t blame them.

            • s73v3r says:

              A CEO is going to have much, much, much more impact on the growth of a company than the rank and file employees. Although they also should be rewarded when the company does well.

            • Gulliver says:

              A CEO is ultimately the decision maker. A rank and file worker would happily share int he risk, if they share in the decision. I didn’t see union laborers designing and marketing shitty gas guzzling cars from the Detroit 3. That is 100% on the CEO. The funny part is GM didn’t even fire the guy who was in charge from things being ok to disaster. They just kept promoting him.

        • SonicPhoenix says:

          If you were a great CEO worth $15 million, I would expect that the company you run wouldn’t have to be bailed out and thus this pay cap would never apply. If it does, I would wager to say that you’re not worth the amount that you claim.

          I strongly agree with the other provision and would like to see corporate tax cuts for any company where the top pay is within a certain multiple of the median/average pay. Definitely less than 100x though and maybe scale the tax break to increase on a sliding scale as the ratio gets smaller. However, median/average pay in this case needs to include contractors and subs to prevent companies from firing employees and hiring them back under a separate contracting company to game the numbers.

  4. Big Mama Pain says:

    Tying labor cost goals to bonuses for managers is pretty much business 101.

  5. Loias supports harsher punishments against corporations says:

    Duh. Where do you think their bloated salaries came from?

  6. segfault, registered cat offender says:

    That’s the ugliest cat I’ve ever seen.

  7. Commenter24 says:

    How many of those laid-off workers were unnecessary? Was the CEO simply making the company more lean? There is nothing wrong with trimming the fat and getting rid of workers whose jobs are no longer necessary, be it because of technological advancements, changes in business models or simply reduction in business. It sucks that people get fired, but that’s no reason to keep them on the payroll.

    • TuxthePenguin says:

      Wow, good post.

      One thing people routinely overlook is that you typically want to be staffing for the future. If I think I’ll be having more business, I hire. If i think my business will decrease, I lay people off. Look at Miami Heat and their sales staff. Their “business” for the next few months is 0. So you let them go.

      Yes, it sucks. But how many of us would continue to pay for some service even after we’ve stopped using it? Or will never use it. If you would, please let me know because I’d love to get cable if you’re willing to pay for it.

    • RandomHookup says:

      Absolutely, but it is never as simple as that. Companies have a tendency to lay off and then can’t find the talent/experience they need when they start growing again. I’ve hired more than a few folks that my company laid off a few months before. Companies don’t do a good job at retraining people when their skills don’t fit the future model and labor markets are notoriously difficult and relatively inelastic.

      Before companies lay off, they really need to think through what the needs could look like in the future and how “excess” talent can be used to address shortfalls.

      • MustWarnOthers says:

        This is 100% off topic, but I noticed your avatar is the Newcastle cap.

        Have you ever tried Rogue ales Hazelnut Brown Nectar? It’s a brown ale fit for kings.

    • Gulliver says:

      So if that is the case, why should the CEO get a raise for doing that? Has he increased his work load? I bet not. How about he can make 50-100 times the average pay and that is it for all publically traded companies. That means if your average salary is 20k, you can male between 1-2 million. If not, the extra money 8 million made could be distributed amongst the workers.

    • Does not play well with others says:

      It would be nice if the real world worked that way but personal experience tells me different.

      My first job out of college I was completely useless, I spent most days just surfing the web because I didn’t have the experience to work on anything useful and my peers who did were too busy to mentor me. So a year later when layoffs came around who got the sack? Not me because I didn’t make squat for money and as far as the accounts were concerned I wasn’t even on their radar. It was all the experienced engineers who were making a good salary.

      Funny part is they had to hire some of them back months later when they realized the projects were all at a standstill.

  8. AllanG54 says:

    So are the Boards of Directors of these companies to blame? Probably not. With the advances in technology you just don’t need as many people. It’s called “featherbedding” when there’s too many employees to do the work needed. Years ago when the first jets came out you needed four people in the cockpit. Today, unless you’re on a 747 you only need two. It’s just the way it is.

  9. SPOON - now with Forkin attitude says:

    duh. of course I do. also I fire everybody at age 54.

  10. cmenter says:

    Who would guess that two things both highly correlated with company size would themselves be correlated? I bet the companies with the most employee sick days taken also have more highly paid CEOs, and its not because CEOs are rewarded for getting their employees sick!

    CEOs of bigger firms are generally paid more and this shouldn’t surprise anyone.

  11. oldwiz65 says:

    And in the health insurance industry, the quickest way to advance in the management ranks is to deny claims. The more claims you manage to deny, the more valuable you are to the company, even if it causes untold misery.

  12. alstein says:

    One possible legitimate reason: the corporations that fired the most workers had the most workers, which might make the CEO’s earn more.

    That said, I do think there’s class warfare going on , and the rich are winning bigtime.

  13. Saltpork says:

    Water is wet and greed is inevitable.
    Trickle down economics works my achin’ ass.

  14. PanCake BuTT says:

    That is one dirty kitty, dancing the poles has never seemed so enticing !

  15. Dustbunny says:

    Fat cat kitty enjoys his ill-gotten gains.

  16. sopmodm14 says:

    thats b/c the money they saved, was converted into their bonuses….its an easy way to add a few $10k’s into their checks.

    were’nt’ they laying off workers so that corporations could restructure and reinvest money, instead of hordeing them ?

  17. RogueWarrior65 says:

    It’s not that complicated, folks. If you’re a slacker or dead-weight in a company, eventually you won’t be working there. And quite frankly, that’s the way it should be. Contrary to what the Marxists in the world would have you believe, a company doesn’t exist to employ people. A company exists because investors started it and continue to believe it to be a worthy investment. Investors still don’t believe in heavily unionized companies because they have come to realize that union benefits are a millstone around the company’s neck. A smart CEO will get rid of the dead-weight before the company goes under.

    • th3v6cann3val0s3 says:

      And contrary to your clear misunderstanding of Marxism, what you posted is not what labor activists have been fighting for. Why is it so hard to understand that labor is needed and should be respected?

  18. Rena says:

    This study has doomed several jobs.

  19. Bremma says:

    As my dad always joked CEOs saying

    “Wow! We’d be making so much more money if we didn’t have to pay all of these workers!”

  20. axiomatic says:

    Honestly this fact is a pretty sad fucking situation. Good job CEO’s you’ve fucked up America.

    (sorry this one really pisses me off.)