Pretend that "salary" means "total compensation". The article covers stock too:
"freeze CEO pay and stock options and prevent stock sales for a year following any layoffs that exceed 5% of the workforce"
> mostly stock grants and other stuff that is taxed at lower rates than wage income
False. Income is income and it's taxed like income.
Now if you were to say that companies do funny stuff like hiring a company owned by the CEO for "consulting" services in order to funnel some of the CEO's compensation there, I'd believe you. But otherwise, no. Options, grants, perks - it's all W2 income and taxed that way.
which somehow rarely/never happens. I suspect they may have some contractual obligations to hold on stocks, otherwise market may start panicking seeing CEO aggressively selling stocks.
I understand that these polemics express frustration with the status quo, but isn’t it the CEO’s job to run their company as effectively (and efficiently) as possible? To that end, just as it is up to any employee to look out for their own interests when negotiating their salary, it is up to the CEO (and other managers) to look for savings where they can. Just as an employee who leaves for a higher-paying position is doing right by their family, the CEO who reduces payrolls is doing right by the shareholders.
> the CEO who reduces payrolls is doing right by the shareholders.
If the company is really struggling so much, the CEO can do even more right by the shareholders by cutting their own pay. After all they're more responsible than anyone else for the company being in that situation.
The article isn't arguing layoffs shouldn't happen. It's stating that they should be a shared sacrifice. If the CEO personally benefits in the short-term by laying people off their interests are in conflict with long-term shareholders' interests. So align those interests better - make it so the CEO doesn't personally benefit from layoffs. Only the other shareholders do. Specifically:
"freeze CEO pay and stock options and prevent stock sales for a year following any layoffs that exceed 5% of the workforce."
If they still "do right by the shareholders" when it doesn't line their own pockets, then fair enough. It was really necessary.
You’re assuming the layoffs are a reaction to poor strategy and/or decrease revenue potential, but that’s not always true. It could be that the market is shifting away from that company for some external reason, or that those employees were truly redundant.
> It could be that the market is shifting away from that company for some external reason
The CEO is the main strategy and vision guy at the company. They're supposed to be able to foresee market shifts. If they don't do that, why do they deserve to be paid so well? Because they negotiated so hard with their golf buddies on the board?
It's a one-year pay cut, not the end of the world.
> or that those employees were truly redundant.
Maybe. In that case, the long term increase in stock price should make up for any short-term pay cuts, right? The CEO will benefit eventually too.
I’m a CEO, I was not given a magic ring to predict the future when I took the role, I make the best decisions I can as a totally flawed human being.
Businesses have natural expansion and contraction cycles. New products are built and iterated on with a hope of finding product market fit, but most of these endeavours fail.
I am paid to make the hard decisions. Sometimes that hard decision is to scale down the workforce. Yes, it sucks, but a large majority of those impacted end up financially ahead (rehired quickly and one, two or three months ahead because of the redundancy payout).
Penalising a CEO for making hard decisions is a great recipe for stagnant companies. What would have happened to Kodak or Blockbuster if they had a CEO with enough grit to cut the workforce and pivot the businesses before they collapsed?
> Penalising a CEO for making hard decisions is a great recipe for stagnant companies. What would have happened to Kodak or Blockbuster if they had a CEO with enough grit to cut the workforce and pivot the businesses before they collapsed?
The situation they were both in, if the CEO had just cut staff and taken a windfall bonus then there wouldn't be the cash to pivot. Because thats what we are talking about here.
It would have taken a couple of years to pivot successfully, so they should be compensated a couple of years after the layoffs not firing workers and taking their salaries as a bonus before quiting.
> What would have happened to Kodak or Blockbuster if they had a CEO with enough grit to cut the workforce and pivot the businesses before they collapsed?
The CEO would have made less money for a few years while the turnaround was in progress. If it succeeded, the stock would take off and they'd profit handsomely. I don't see the problem with these incentives.
Let's remember again, the proposal from the article:
"freeze CEO pay and stock options and prevent stock sales for a year following any layoffs that exceed 5% of the workforce"
What you don't want is a CEO dumping the stock when it goes up after the layoff. That's a conflict of interest. And if the company needs to do layoffs to conserve cash, the CEO and rest of the leadership taking pay cuts will also help the shareholders.
Do you know that there were times when there were elevator operators? Based on your line of argument, if a hotel really could not afford to keep the elevator operators employed, the CEO should have taken a pay cut.
If 5% of a hotel's employees were somehow elevator operators then maybe the CEO should be fired, not just made to take a pay cut. That's poor management.
And like why not? Maybe you'd see the CEO try harder to find these people alternative roles, instead of immediately discarding them the minute guests got comfortable with pushing buttons themselves. An elevator operator could retrain as a bellman, janitor or housekeeper, something in the kitchen, maybe the front desk.
Hell, they’d probably be easier and less expensive to reassign than to hire anew for other roles because they’re already on the payroll, aware of policies, have their access provisioned, vetted for trustworthiness, etc.
The behavior of many CEOs engaging in mass layoffs certainly doesn’t demonstrate that they’re aware of it.
That’s why requiring massive CEO pay cuts when they engage in mass layoffs would be a good thing. It would help remind them that layoffs are a failure and the buck stops with them.
I was laid off 2 years ago. I was given all the opportunities to find another internal job. I send my resume to a number of managers. I didn't hear back. Why? Because the CEO told the managers to ignore me? I doubt that. The managers, knowing about all the likely advantages of internal hires (I was familiar with the infrastructure, with the culture, I had a network, etc) decided to not hire me.
The company went out of its way to improve my experience. They know it's not fun for people to be laid off, so they did the best they could to soften the blow. I was paid for 4 months, and I was officially still on the pay-roll for 3 months (i.e. I was still covered by the health insurance, I did not need to get COBRA). I received free coaching from a consulting company, to assist me with improving my resume and interviewing skills. The company pays for former laid-off employees to come and tell their story to the freshly laid-off. The company even continued to match my 401k for the 3 months I was not working, but officially still on the payroll.
My experience was very positive. Of course, I can't generalize, I'm sure other people felt differently.
But here I am. A guy who had gone through the experience of being laid off, and who defends the rights of CEO's to lay off people, if that's in the best interest of their company.
> who defends the rights of CEO's to lay off people, if that's in the best interest of their company.
Again let's be clear, no one's saying CEOs don't have the right to lay off people. You're arguing against a strawman.
Even the article doesn't say that. It says the CEO should not personally benefit financially immediately after a layoff. It's a clear conflict of interest. Not just with other employees but, more importantly, with other shareholders. Do you believe in good corporate governance, free of corruption and self-dealing?
CEOs in particular must always act in the best interests of the company and its shareholders, even when it's contrary to their own interests. This is one such example. The type of person who won't lay people off when it's necessary solely because they'll lose their bonus, is fundamentally a bad CEO. You don't ever want that person in charge. A company that would appoint that kind of person deserves to fail.
The CEO shouldn’t have the right to arbitrarily lay off people. They should have to go through substantial formal procedures to do so, much more than the United States makes them go through now.
Furthermore, _Chrysler v Ford_ was not actually a precedential legal decision at either a federal or state level, and we need to stop treating it as such—and we need to stop treating it as morally correct, too, since it’s not morally correct to put profit-seeking above all other concerns in any way.
> _Chrysler v Ford_ was not actually a precedential legal decision
AFAICT it wasn't any kind of decision. Are you thinking of Dodge v Ford?
> it’s not morally correct to put profit-seeking above all other concerns in any way
Dodge v Ford held that companies are run for the benefit of shareholders. Future court decisions further clarified that "benefit" isn't the same as profit. As I wrote in this comment 8 months ago:
> The Supreme Court said as recently as 2016: "Modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not...More to the point, corporate directors are protected from most interference when it comes to running their business by a doctrine known as the business judgment rule. It says, in brief, that so long as a board of directors is not tainted by personal conflicts of interest and makes a reasonable effort to stay informed, courts will not second-guess the board’s decisions about what is best for the company — even when those decisions predictably reduce profits or share price."
Thank you, I indeed meant _Dodge v Ford_. At the time it was decided it really did equate benefit with profit, but as you said there have been a bunch of subsequent decisions specifically declaring that they’re not the same thing. And as I said, the decision itself was non-precedential.
I'm just someone who is very good at their job. I'm better at what I do that 99% of the people. But in my previous job I wasn't. They did me a favor that they let me go. I was lucky and I found quickly another job where I happened to be a very good fit.
The experience of being laid off and then finding a much better job is not unique to me. It's not universal, but it's not that rare either.
In a world where the barriers for firing people are high, lots of people will find themselves stuck in jobs they hate. I'm sure you will disagree, you'll say that people are free to go and look for another job at all times. But that's just theory. In practice only a small minority of people do that. Most will just suffer through a bad job, because they have bills to pay, kids to feed, etc. This is just a fact.
No, I actually do agree that lots of people are stuck in jobs they hate.
The solution to that isn’t to cheer on layoffs. The solution is to establish a good social safety net—especially when it comes to housing and healthcare—so people don’t have to either do a job they hate or die in the gutter.
When you were laid off with lots of assistance, preserved insurance, compensation, etc. from your employer, you experienced what life is like with such a safety net. However, it was mostly provided by your employer as a perk rather than by society as a social good; the rules on what employers have to provide in the US at least are very lax.
What’s maddening about opposition to providing this society-wide is that doing this would also reduce companies’ administrative overhead (HR costs would plummet without tying healthcare and retirement to employment), and would make it easier to entice good people away from their existing jobs by reducing risk.
The simple fact is that the oligarchs running corporate America really want serfs, not free agents, and they’re the ones who fight doing this society-wide even though it costs them far more to do it the way it’s done now.
> The OP did not care about these distinctions. If a CEO fires people, he should get a pay cut.
If the CEO fires more than 5% of the people. If a business needs to move some people around or eliminate a handful of jobs sometimes, it's no big deal. Beyond a certain threshold, it becomes a big deal. It means the company has missed the boat on something, or the economy has turned, or something else equally bad.
Whatever the reason, it means the company needs to reduce expenses and everyone who is still at the company needs to work harder, with redoubled vigor, so that the company can get back on track. This is exactly the worst time to give the CEO outsize rewards both financially, and due to what it does to everyone else's morale.
Instead freeze all C-suite pay increases, eliminate their bonus, no new stock grants, and no selling stock they already own for at least a year. If their efforts work out that stock will be worth even more later. If they don't, can they argue that it was unfair?
I wrote a long rant in response to this but decided to spare you and instead just say this:
Shareholder capitalism has fucked up the minds of so many people (especially Americans) where they think the purpose of a company is to extract maximum value for the shareholders. Sorry, no. The purpose of a company is to either a) fulfill their mission to the best of their ability (which is never “maximize shareholder value”), or b) provide quality goods/services at a fair price.
I would think they have to keep the commitments in the charter, and only the board can propose changes for shareholders to vote on (because they own it all).
While CEO pay may not be that material to the total revenue or total employee salaries; many shareholders (and the governments these companies seek bailouts and grants for) must ask if their poor performance even comes close to justifying their pay while tanking morale among employees with layoffs and RTO mandates to get employees to quit.
Intel's and Boeing's past CEOs and arguably Google's current CEO for example did not justify their pay by any stretch of the imagination while their company's fundamentals tanked. Like many CEOs they coast on brand and monopoly effects. Google used to be seen as the AI leader for example. Intel's and Boeing's decline is becoming a national security concern for USA.
Ostensibly CEO compensation is so high in order to incentivize them to make the company perform well, this job that apparently only these rare individuals are uniquely talented to do. If the CEO suffered pay cuts or lost their job when times turned bad for the company -- the way it does for those being laid off -- then wouldn't that be a pretty strong incentive to keep the ship running well?
Instead, it seems CEOs just get to keep the carrot, while the fallout from their poor decisions falls on everyone else. What kind of performance incentive is that?
Lots of boards have pushed out CEOs who performed poorly enough: Apple, Disney, HP, IBM, Twitter, and Yahoo are well known. But the performance is expectations around market share, profits, stock price, or dividends, not burning as much money as possible on payroll.
If the layoffs are announced by a new CEO being brought in to right the ship, that's totally fair. If it's the same CEO who inflated the payroll just a few years ago and is now with eyes downcast claiming "full responsibility" at the all hands when their own highly-compensated decisionmaking turned out to be a totally-unforseeable strategic mistake, then it's rather less understandable.
Perhaps the CEO learned from their mistakes and is still the right leader, but their compensation structure should be forward-looking enough that if they steered the company this far wrong along the way, then their pay incentive will naturally reflect that poor outcome. But it seems that, for example, Boeing's ousted CEO has made quite the fortune despite presiding over history-making damage to shareholder interests.
In that case the mistake was the overhiring rather than the layoff. And it's hard for a board to admit that the entire plan (which they probably approved) was a mistake from the beginning. If the CEO fails at making the plan work in an obvious way, he's probably out.
Edit: As I understand it, he's out if the board thinks they will recruit someone who would have done better.
Used to be that "Captain goes down with the ship" but it's unfortunate to see the trend shift. The fundamental problem I see is that CEOs are not loyal to their "ship" and the crew. After all, why bother when you can just jump ship! I don't have any idea on what might fix this but it'll forever be a sad sight to see people and the family they feed be devalued to numbers in quaterly reports.
Forget about freezing pay for CEOs, they get a hike for over hiring and then subsequently taking the “bold” step of laying off people too. The revenues and stocks for each of these companies are at an all time high so the firing employees is not really justified, they are taking advantage of the mood in the industry
I fall into the who cares camp. The big losers are the dolt investors who dubbed the golden parachute contracts anyway. Let them lose their money, bet they won’t do it again and the problem will take care of itself.
Absolutely. If it's so bad let the shareholders pay the price. Market dynamics should take care of this mindset eventually (if it indeed needs fixing).
Economies of scale lead to winner takes all. If someone can figure out how to fix that and introduce more competition, we would see very different behavior by leadership.
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[ 3.1 ms ] story [ 115 ms ] threadPretend that "salary" means "total compensation". The article covers stock too:
"freeze CEO pay and stock options and prevent stock sales for a year following any layoffs that exceed 5% of the workforce"
> mostly stock grants and other stuff that is taxed at lower rates than wage income
False. Income is income and it's taxed like income.
Now if you were to say that companies do funny stuff like hiring a company owned by the CEO for "consulting" services in order to funnel some of the CEO's compensation there, I'd believe you. But otherwise, no. Options, grants, perks - it's all W2 income and taxed that way.
au contraire
If the company is really struggling so much, the CEO can do even more right by the shareholders by cutting their own pay. After all they're more responsible than anyone else for the company being in that situation.
The article isn't arguing layoffs shouldn't happen. It's stating that they should be a shared sacrifice. If the CEO personally benefits in the short-term by laying people off their interests are in conflict with long-term shareholders' interests. So align those interests better - make it so the CEO doesn't personally benefit from layoffs. Only the other shareholders do. Specifically:
"freeze CEO pay and stock options and prevent stock sales for a year following any layoffs that exceed 5% of the workforce."
If they still "do right by the shareholders" when it doesn't line their own pockets, then fair enough. It was really necessary.
The CEO is the main strategy and vision guy at the company. They're supposed to be able to foresee market shifts. If they don't do that, why do they deserve to be paid so well? Because they negotiated so hard with their golf buddies on the board?
It's a one-year pay cut, not the end of the world.
> or that those employees were truly redundant.
Maybe. In that case, the long term increase in stock price should make up for any short-term pay cuts, right? The CEO will benefit eventually too.
Businesses have natural expansion and contraction cycles. New products are built and iterated on with a hope of finding product market fit, but most of these endeavours fail.
I am paid to make the hard decisions. Sometimes that hard decision is to scale down the workforce. Yes, it sucks, but a large majority of those impacted end up financially ahead (rehired quickly and one, two or three months ahead because of the redundancy payout).
Penalising a CEO for making hard decisions is a great recipe for stagnant companies. What would have happened to Kodak or Blockbuster if they had a CEO with enough grit to cut the workforce and pivot the businesses before they collapsed?
The situation they were both in, if the CEO had just cut staff and taken a windfall bonus then there wouldn't be the cash to pivot. Because thats what we are talking about here.
It would have taken a couple of years to pivot successfully, so they should be compensated a couple of years after the layoffs not firing workers and taking their salaries as a bonus before quiting.
The CEO would have made less money for a few years while the turnaround was in progress. If it succeeded, the stock would take off and they'd profit handsomely. I don't see the problem with these incentives.
Let's remember again, the proposal from the article:
"freeze CEO pay and stock options and prevent stock sales for a year following any layoffs that exceed 5% of the workforce"
What you don't want is a CEO dumping the stock when it goes up after the layoff. That's a conflict of interest. And if the company needs to do layoffs to conserve cash, the CEO and rest of the leadership taking pay cuts will also help the shareholders.
And like why not? Maybe you'd see the CEO try harder to find these people alternative roles, instead of immediately discarding them the minute guests got comfortable with pushing buttons themselves. An elevator operator could retrain as a bellman, janitor or housekeeper, something in the kitchen, maybe the front desk.
Sometimes you can reshuffle people inside a company and find jobs where they are more productive. But sometimes you can't.
The OP did not care about these distinctions. If a CEO fires people, he should get a pay cut.
That’s why requiring massive CEO pay cuts when they engage in mass layoffs would be a good thing. It would help remind them that layoffs are a failure and the buck stops with them.
But second, they do care. Even if they shouldn't.
I was laid off 2 years ago. I was given all the opportunities to find another internal job. I send my resume to a number of managers. I didn't hear back. Why? Because the CEO told the managers to ignore me? I doubt that. The managers, knowing about all the likely advantages of internal hires (I was familiar with the infrastructure, with the culture, I had a network, etc) decided to not hire me.
The company went out of its way to improve my experience. They know it's not fun for people to be laid off, so they did the best they could to soften the blow. I was paid for 4 months, and I was officially still on the pay-roll for 3 months (i.e. I was still covered by the health insurance, I did not need to get COBRA). I received free coaching from a consulting company, to assist me with improving my resume and interviewing skills. The company pays for former laid-off employees to come and tell their story to the freshly laid-off. The company even continued to match my 401k for the 3 months I was not working, but officially still on the payroll.
My experience was very positive. Of course, I can't generalize, I'm sure other people felt differently.
But here I am. A guy who had gone through the experience of being laid off, and who defends the rights of CEO's to lay off people, if that's in the best interest of their company.
Again let's be clear, no one's saying CEOs don't have the right to lay off people. You're arguing against a strawman.
Even the article doesn't say that. It says the CEO should not personally benefit financially immediately after a layoff. It's a clear conflict of interest. Not just with other employees but, more importantly, with other shareholders. Do you believe in good corporate governance, free of corruption and self-dealing?
CEOs in particular must always act in the best interests of the company and its shareholders, even when it's contrary to their own interests. This is one such example. The type of person who won't lay people off when it's necessary solely because they'll lose their bonus, is fundamentally a bad CEO. You don't ever want that person in charge. A company that would appoint that kind of person deserves to fail.
The CEO shouldn’t have the right to arbitrarily lay off people. They should have to go through substantial formal procedures to do so, much more than the United States makes them go through now.
Furthermore, _Chrysler v Ford_ was not actually a precedential legal decision at either a federal or state level, and we need to stop treating it as such—and we need to stop treating it as morally correct, too, since it’s not morally correct to put profit-seeking above all other concerns in any way.
AFAICT it wasn't any kind of decision. Are you thinking of Dodge v Ford?
> it’s not morally correct to put profit-seeking above all other concerns in any way
Dodge v Ford held that companies are run for the benefit of shareholders. Future court decisions further clarified that "benefit" isn't the same as profit. As I wrote in this comment 8 months ago:
> The Supreme Court said as recently as 2016: "Modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not...More to the point, corporate directors are protected from most interference when it comes to running their business by a doctrine known as the business judgment rule. It says, in brief, that so long as a board of directors is not tainted by personal conflicts of interest and makes a reasonable effort to stay informed, courts will not second-guess the board’s decisions about what is best for the company — even when those decisions predictably reduce profits or share price."
https://news.ycombinator.com/item?id=39643452
Sounds more like you love the taste of their boot than that you’re any sort of good economist.
I'm just someone who is very good at their job. I'm better at what I do that 99% of the people. But in my previous job I wasn't. They did me a favor that they let me go. I was lucky and I found quickly another job where I happened to be a very good fit.
The experience of being laid off and then finding a much better job is not unique to me. It's not universal, but it's not that rare either.
In a world where the barriers for firing people are high, lots of people will find themselves stuck in jobs they hate. I'm sure you will disagree, you'll say that people are free to go and look for another job at all times. But that's just theory. In practice only a small minority of people do that. Most will just suffer through a bad job, because they have bills to pay, kids to feed, etc. This is just a fact.
The solution to that isn’t to cheer on layoffs. The solution is to establish a good social safety net—especially when it comes to housing and healthcare—so people don’t have to either do a job they hate or die in the gutter.
When you were laid off with lots of assistance, preserved insurance, compensation, etc. from your employer, you experienced what life is like with such a safety net. However, it was mostly provided by your employer as a perk rather than by society as a social good; the rules on what employers have to provide in the US at least are very lax.
What’s maddening about opposition to providing this society-wide is that doing this would also reduce companies’ administrative overhead (HR costs would plummet without tying healthcare and retirement to employment), and would make it easier to entice good people away from their existing jobs by reducing risk.
The simple fact is that the oligarchs running corporate America really want serfs, not free agents, and they’re the ones who fight doing this society-wide even though it costs them far more to do it the way it’s done now.
If the CEO fires more than 5% of the people. If a business needs to move some people around or eliminate a handful of jobs sometimes, it's no big deal. Beyond a certain threshold, it becomes a big deal. It means the company has missed the boat on something, or the economy has turned, or something else equally bad.
Whatever the reason, it means the company needs to reduce expenses and everyone who is still at the company needs to work harder, with redoubled vigor, so that the company can get back on track. This is exactly the worst time to give the CEO outsize rewards both financially, and due to what it does to everyone else's morale.
Instead freeze all C-suite pay increases, eliminate their bonus, no new stock grants, and no selling stock they already own for at least a year. If their efforts work out that stock will be worth even more later. If they don't, can they argue that it was unfair?
Shareholder capitalism has fucked up the minds of so many people (especially Americans) where they think the purpose of a company is to extract maximum value for the shareholders. Sorry, no. The purpose of a company is to either a) fulfill their mission to the best of their ability (which is never “maximize shareholder value”), or b) provide quality goods/services at a fair price.
why do you think you have authority for such declaration?
Intel's and Boeing's past CEOs and arguably Google's current CEO for example did not justify their pay by any stretch of the imagination while their company's fundamentals tanked. Like many CEOs they coast on brand and monopoly effects. Google used to be seen as the AI leader for example. Intel's and Boeing's decline is becoming a national security concern for USA.
Instead, it seems CEOs just get to keep the carrot, while the fallout from their poor decisions falls on everyone else. What kind of performance incentive is that?
Perhaps the CEO learned from their mistakes and is still the right leader, but their compensation structure should be forward-looking enough that if they steered the company this far wrong along the way, then their pay incentive will naturally reflect that poor outcome. But it seems that, for example, Boeing's ousted CEO has made quite the fortune despite presiding over history-making damage to shareholder interests.
Edit: As I understand it, he's out if the board thinks they will recruit someone who would have done better.
they probably got lots of lower quality employees during aggressive hiring period, so make sense to cut some fat.