One of the clearest measures of how radically impactful the coronavirus crisis has been on our country is the 38 million Americans who have filed for unemployment insurance over the last nine weeks, many of whom have been unable to return to their previous jobs or find other work.
Across the economy, companies of all sizes are facing gale force financial headwinds. The sad reality is that for many companies, layoffs and furloughs were unavoidable and unfortunately many more are likely still to come. According to our COVID-19 Corporate Response Tracker, 36% of the 100 largest U.S. employers have so far temporarily or permanently laid off employees in order to accommodate losses.
Our ongoing survey effort has shown Americans want to see companies do all they can to avoid layoffs, with 73% of respondents saying they believe companies should sacrifice short-term profits before letting employees go. And while there’s no silver bullet to avoiding layoffs, one of the levers companies can pull is the reduction of compensation for CEOs and other executives. (See our JUST Principles for more.)
Before the coronavirus crisis unfolded in the U.S., CEO compensation was already a contentious topic, but in the face of today’s economic recession, the figures are especially breathtaking. Over the last 40 years, CEO compensation grew 940%, while worker wages increased by less than 12%. The stark discrepancy is already leading to renewed pressure from advisors and investors.
This increase is one of the most visible effects of the shareholder primacy theory that said a company’s sole purpose was to do whatever it takes to maximize profits, and a good incentive to make that happen would be increasingly linking CEO pay to stock performance. JUST was founded around promoting the stakeholder capitalism approach that prioritizes long-term over short-term value, and we believe that this crisis has made that goal more important than ever.
And in this crisis, soaring executive compensation is a clear target for cost-cutting measures many companies can employ in an attempt to protect the financial security of their workers.
Our current analysis shows that only one-third of companies have announced executive compensation cuts. Of those companies, more than two-thirds have also announced furloughs or layoffs begging the question if those pay cuts helped protect some number of jobs or if they were more of a goodwill gesture to demonstrate shared sacrifice. It’s also important to note that salaries are just one element of a full compensation package, which also includes bonuses and incentive awards – compensation which for many remains untouched.
Delve into our Corporate Response Tracker to explore which companies have announced executive paycuts during the crisis:
Of course, this is tricky. Cutting CEO pay may signify goodwill more than it actually saves enough to keep a significant number of jobs intact. Some sectors, like airlines and retail, have been so severely impacted that a multitude of cost-cutting measures are needed to ride out the crisis. Regardless, this moment emphasizes the need for change. As millions of Americans file for unemployment while executive pay remains high, corporate leaders may increasingly be asked to justify significant discrepancies in pay.
Of the 33 companies that have announced executive or board pay cuts, nine have done so while avoiding layoffs and furloughs – as of May 21 – including:
The question remains whether these adjustments made in pay will be enough to stave off layoffs or furloughs in the longer term. The airlines above, despite receiving funds from the federal bailout that prohibit them from letting employees go until September 30, anticipate they may ultimately need to lay workers off in the fall – United, for example, has already announced it is likely to do so after September.
Delve into the Tracker to explore which companies have announced layoffs for their workers:
Ultimately, if layoffs or furloughs are unavoidable corporate leaders should strive to do so in a way that treats their employees with dignity, and provides them with as much of a financial runway as possible, providing advanced notice, paying out meaningful severance, helping employees retain insurance coverage where possible, and fulfilling commitments to equity, bonuses, or other compensation. Earlier this month, Airbnb did just that when it announced laying off 25% of its employees, providing them a minimum of 14 weeks of severance and covering the cost of their health insurance for the next 12 months.
As many of our country’s businesses begin to reopen, we will be watching closely to see how companies approach executive pay and layoffs, and whether those that reduced C-suite compensation are able to hold onto their workers. There are many tests still to come, and the decisions that companies make in the coming months will be critical in determining both the physical and financial health of America’s workers. One thing is for sure: It will not be business as usual after this crisis, and as corporate leaders begin to envision a more just and equitable future following the pandemic, compensation – from the C-suite to the factory floor – must be up for discussion.
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