On Thursday, the Department of Labor reported that over 2 million Americans filed for unemployment last week. This brings the total to more than 40 million people who have filed for unemployment benefits since mid-March—the beginning of the Covid-19 pandemic.
It’s disconcerting that while millions of Americans lose their jobs—and millions more are worried that they’ll be next—corporate CEOs continue to be showered with excessively enhanced compensation packages.
A common thread appears amongst the companies announcing large layoffs. The CEOs are lavishly paid. They’ve executed large-scale buybacks that have enriched the upper-executive echelon and sorely lacked judgement and the foresight to save sufficient funds for a black swan event or business downturn.
Now that we’ve hit a health crisis that bled into an economic crash causing a job-loss disaster, the missteps of the CEOs have publicly been exposed. There’s an obvious mismatch between their compensation relative to the performance of their respective companies.
While they’ve earned fortunes, a massive number of workers have been laid off. The stock prices have plummeted, resulting in billions of dollars burned up, which could have been used during this current period of distress.
For some reason, there’s no clawbacks for when things go wrong. The CEOs keep their millions, while their employees are tossed out and thrusted into the worst job market since the Great Depression.
Here are some examples that illustrate this point:
Chevron, one of the largest oil producers in the country, announced that it will eliminate about 10% to 15% of its global staff, representing roughly 6,700 workers to “match projected activity levels,” according to spokeswoman Veronica Flores-Paniagua.
The company was adversely impacted due to the precipitous drop in oil prices, as travel was grounded to a near halt and people were ordered to stay home. Meanwhile, Chevron CEO Michael Wirth was given a total compensation of $33.1 million and ranked No. 17 in the top 50 CEOs who were paid the largest compensation packages.
American Airlines plans to cut 30% of its employees, which amounts to about 5,000 jobs. Similar to Chevron, the Covid-19 pandemic caused people to refrain from taking flights to travel for work or pleasure. Previously, around 39,000 workers left the company.
The company, along with other airlines, needed to get bailed out by the government (really the taxpayers) and received $25 billion in federal aid. The airlines that accepted the money are restricted from firing people and must retain workers through Sept. 30. We’re likely to see additional downsizings from the airlines, starting in the beginning of October.
American Airlines chairman and CEO Doug Parker made $11,999,517 in total compensation in 2019.
IBM reported that it will conduct large layoffs, but didn’t offer the exact numbers. The newly installed CEO, Arvind Krishna, uniquely portrayed the downsizing as “replacing people with more needed skills,” in an effort to turn the once-acknowledged leader in the technology industry.
In a corporate memo, IBM said, “Highly competitive marketplace requires flexibility to constantly remix high-value skills.”
IBM, like many firms now facing cuts and layoffs, wasn’t just a victim of the pandemic. The company lost market share and its former luster. IBM shares significantly underperformed compared to its peers during the reign of former CEO Ginni Rometty. Since January 2012, at the time of her commencement as CEO, to the announcement of her retirement, the share price of IBM’s stock declined -4%—versus a 208% return for the S&P 500. By comparison, Microsoft’s shares rocketed to over 500% during the same time period. The tech-oriented Nasdaq Composite Index increased a resounding 250% over that same time.
As chairman, president and CEO at IBM, Rometty made $19,083,981 in total compensation in 2019.
Boeing announced that 6,770 employees are facing involuntary layoffs, as the company restructures during the coronavirus pandemic. Reuters reported that the aircraft manufacturer is allowing 5,520 voluntary layoffs. This is in addition to 6,770 “involuntary ones,” which is a nice term for downsizing people. As you can imagine, a company building planes for airlines that have few—if any—passengers is not in a good space.
CEO Dave Calhoun said to his employees, “We have come to the unfortunate moment of having to start involuntary layoffs.” Calhoun added, “I wish there was some other way.”
The company planned for about 16,000 job cuts and there’s been about 12,000 so far. A company spokesperson warned of additional rounds of layoffs “over the next few months.” Since the company also received bailout money, the spokesperson’s claim will most likely ring true once we enter October and the plane maker no longer needs to retain people.
Covid-19 was the last straw, but Boeing had a rash of bad decisions, including CEO turnover, accusations of misselling its 737 Max jets, faulty software and spent over $11 billion to buy back stock. Boeing’s CEO at the time, Dennis Muilenburg, was fired and walked away with about $58.5 million.
David Calhoun, took over for Muilenburg, who resigned at the end of December. According to a regulatory filing, Calhoun gets a total annual compensation of about $11 million a year.
Within the last months, a number of iconic American companies filed for bankruptcy protections. Some of these companies, such as J.C. Penney and Hertz, handed out millions in bonuses, while their workers were left out in the cold.
In light of these actions, the board of directors and shareholders should take a fresh look at compensation. Why should CEOs get rewarded for failing and keep their money without any clawbacks for bad decisions or mismanagement, while shareholders lose money and workers their jobs?