Posted by
Playful Walrus on Tuesday, September 23, 2008 1:21:16 PM
I’ve heard this one again recently. It is said as though there is something wrong with an executive, such as a CEO, getting millions of dollars in some form of compensation, while thousands of workers are being laid off from the company. I don't think that belief is necessarily true.
It is understandable that the people getting laid off have some resentment, because that is human nature.
But unless the layoffs are a result of the company failing and thus going out of business, then an executive is entitled to whatever compensation he or she is contractually owed. Taxpayers should not be paying that compensation. As long as that compensation is through other legal means, I don’t see the problem.
There is nothing wrong with a thriving and successful company layoff people off, if doing so will help the company perform even better for investors and customers. I say this with the caution that not all things that look good on paper actually turn out so well. If the layoffs reduce morale among those who remain or otherwise negatively change the culture and interpersonal dynamics of the company’s workforce too strongly, the company as a whole could suffer. But if the layoffs clean out dead weight and trim the fat, then that’s a good thing, and hopefully those laid off will find an even better job, even if they create it themselves. Unless there is a contract that says otherwise, a company does not owe anyone a job.
Company owners should be able to set executive compensation, including salary, bonuses, stock options, or whatever, in a way that best suits them. I don’t buy the idea that CEOs must be guaranteed eight or nine figures or the company will have trouble finding someone. I’m sure there capable people with the right temperament who can be found for a minimum of seven figures, someone who can keep the company growing enough or at least strong enough to not be beaten out of the market by the competition. As an investor, I would prefer that the compensation packages reward executives for the overall health of the company, and not for doing things that will hurt the company in the long run. (For example, it is easy to boost a quarter’s profits by selling off fixed assets, but if you don’t have a way of making money anymore, that will be a problem!) But that should be up to the owners of a company (shareholders), not a Senate committee.
So try to avoid a knee-jerk reaction when you hear about an executive getting millions of dollars while employees are being laid off. It might not be a bad thing.