CEOs given raises for implementing layoffs.
Position | Business & Finance |
Governing boards reward chief executive officers for the decision to let employees go. Specifically, for the year after a layoff occurs, CEOs of the 229 firms studied received 22.8% more in total pay than CEOs of firms that did not have layoffs, reports Craig Rennie, assistant professor of finance, University of Arkansas, Fayetteville.
"We focused on layoffs because they are common operating decisions that affect shareholder wealth and, thus, CEO pay," he explains. "Based on a comparison of CEO cash and stock-based pay for several years following layoffs, we believe CEOs receive pay increases as rewards for past decisions and motivation for value-enhancing decisions in the future."
Finance researchers and industry specialists know that stock-based compensation aligns managerial and shareholder interests--but, as Rennie emphasizes, researchers are just beginning to explore how governing boards achieve the dual objectives of rewarding managers for past performance and motivating them to deliver value-enhancing decisions in the future.
Total pay is the sum of cash pay--salary plus bonuses--and stock-based compensation, which includes restricted stock grants, stock option grants, and money received from long-term incentive plans. The researchers' findings confirmed earlier studies showing stock-based compensation aligns managerial and shareholder...
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