Some CEOs are more likely to lay off staff than others.
Chief executives who are paid less than their peers are four times more likely to lay off their employees, according to research published this week by the State University of New York at Binghamton. Researchers analyzed data that included CEO pay and layoff announcements made by S&P 500 SPX, -0.09% firms from 1992 to 2014 in the financial services, consumer staples and information technology industries.
Adjusting the analysis for a number of different factors that could influence a layoff — including industry conditions, company size and the firm’s performance — researchers found that the CEOs who were paid less than the market rate for companies of their size and type were far more likely to announce a layoff. What’s more, researchers found that CEO pay generally increased in the year following a layoff when firm performance also improved.
Company bosses are sensitive to how their salaries compare. “CEOs are just like any other type of employee,” said Scott Bentley, an assistant professor of strategy at Binghamton University’s School of Management, and the lead researcher on the study. “They are going to compare their pay to those around them. The difference is that the average employee can’t make strategic decisions for the company that influences their own pay. Executives can.”
While there are some instances where pay increased even when the company’s performance decreased, Bentley said his research found that, in most cases, if the company and the shareholders didn’t benefit from the layoffs, neither did the CEO. The study, “Payoffs for layoffs? An examination of CEO relative pay and firm performance surrounding layoff announcements,” has been accepted by the journal “Personnel Psychology” and is available online.