Cutting Jobs Makes CEOs Richer

We may still be in a recession, but not all American CEOs are feeling your pain. In fact, some are actually gaining from it, according to a new report released by the Institute of Policy Studies. 

The report “CEO Pay and the Great Recession” found that CEOs of the 50 firms who laid off the most workers since the start of the economic crisis took home 42% more pay in 2009 than other Standard & Poor 500 executives who let fewer employees go.

The layoff leaders received $12 million on average in 2009, compared to the total S&P 500 average of $8.5 million. Perhaps this is why so many Americans are still nervous about losing their job. Each of the corporations surveyed laid off at least 3,000 workers between November 2008 and April 2010.

According to the report, the CEOs that have profited the most from company layoffs last year were Fred Hassan of Schering-Plough (Stock Quote: SGP), who was paid $50 million while his company laid off 16,000 workers; William Weldon of Johnson & Johnson (Stock Quote: JNJ), who took home $25.6 million while his firm slashed 9,000 jobs; and Mark Hurd, formerly of Hewlett-Packard (Stock Quote: HPQ), who added $28 million severance to his 2009 pay package of $24.2 million after a year in which his company eliminated 6,400 jobs.

“Business leaders are too short-termist in their thinking,” Sarah Anderson, one of the study’s authors, explained to MainStreet. “They tend to put immediate personal gain ahead of their company’s long-term success.”

Anderson pointed out that while CEO pay on average has declined since the financial crisis, it is still eight times as high (inflation included) as it was in the ‘60s, ‘70s and ‘80s, decades in which the country enjoyed much more financial stability.  As such, Anderson maintained “there’s no real argument that executive pay needs to be this high.”

More worrisome, however, is the fact that 72% of the surveyed firms announced mass layoffs while simultaneously releasing positive earnings reports. Anderson said while these stats may not be entirely driven by a CEO’s conscious effort to fatten his or her own wallet, they are the product of close-minded, flawed business practices. 
“There is this misconception that when you slash workers, you’re doing what you have to, what’s best for your company,” Anderson said. She explained that these swashbuckling efforts rarely benefit a company in the long run since they don’t account for the cost of turnover, training and the effects of low morale in the workplace. Anderson cited a recent study that shows that productivity is on the decline as evidence that executives “have gone too far with cuts.”

Anderson said there have been some “good positive steps” to eliminate the glaring earnings discrepancy prevailing in many Americans’ workplaces. She primarily cited one new rule adopted through the financial reform bill that requires that all firms report CEO-worker pay ratios. However, she says “there’s a lot more that can be done.”

The Institute of Policy Studies has completed an annual “Executive Excess Report” for the past 17 years. Each report examines trends and hotbutton issues between CEOs and their employees. Last year’s report, for example, examined how much executives working for bailed out corporations earned compared to their employees. Interestingly, the Institute’s first study also examined this year’s theme, correlating a CEO’s salary with the number of company layoffs. 

In this instance, layoff data was obtained from Forbes. CEO Earnings data, which includes base salary, grants, bonuses, the value of stock options, above market interest and other low cost perks, was obtained through the Associated Press and/or actual corporate proxy statements.

You can check out the Institute’s website to find out what other CEOs made the list.

Whether or not they love layoffs, an $8.5 million salary isn’t exactly something to be sad about. Check out this MainStreet article that looks at whether or not these CEOs should make less.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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