Home Back Issues October 2008 Should executives share the pain of pay cuts?

Should executives share the pain of pay cuts?

| Print |  Email
Archives - October 2008
Wednesday, October 01, 2008

If corporate ethicist David Layzell had his way, all public companies would institute performance-based executive pay programs like Monaco Coach recently did.

In response to lagging sales, the Coburg-based luxury RV maker announced this summer they were laying off workers and shuttering manufacturing operations in Indiana. The company also decided to reduce the pay of its top executives.

The program cuts the pay of top managers by 15% to 50%, though portions of their compensation can be earned back if they reduce company inventory by $58 million over the next 12 months, according to Securities and Exchange Commission filings.

As the economy slows, top-level executive pay is bound to be an issue with investors as overall business suffers. Layzell, associate director at the Portland State University Center for Professional Integrity and Accountability, says reducing executive pay when times are bad is what any “reasonable company” should do.

But premium executive talent can be tough to find and to keep. A company must also consider the consequences of a skilled and experienced executive leaving for a more desirable job if they take a pay cut. A company must ask, “Can we consciously pay below market value,” Layzell says. After all, “If you pay below market value, you get below market quality,” he says.

Aside from finances, a favorable company image is also at stake. By reconsidering the compensation of a struggling company’s top decision-makers, it addresses the question of “sharing the pain,” says Layzell.

Monaco CEO Kay Toolson’s pay was slashed by 50% and president John Nepute’s compensation was cut by 30%. This should save the company about a million dollars over the year, says Craig Wanichek, Monaco’s director of investor relations.

“It’s about tying the objective of the company with the management team,” Wanichek says. Executive pay-reduction initiatives are relatively new in corporate governance. Layzell, who also held a number of senior finance roles at Intel for 26 years, says such programs were born from the excesses of the 1990s. In recent years, exorbitant executive compensation has encountered a firestorm of scrutiny as investors and employees demand management be held accountable, not rewarded, for a failing company.

Saving money by reducing your own pay, though, is just a small part of it. It’s also a statement of solidarity, says Layzell. When employees see that their bosses are willing to cut their own pay, it boosts workplace morale.                     

JASON SHUFFLER


Have an opinion? E-mail This e-mail address is being protected from spambots. You need JavaScript enabled to view it


 

More Articles

How to add positivity to your team

Contributed Blogs
Friday, September 12, 2014
happy-seo-orlando-clientsBY TOM COX | OB BLOGGER

I often talk about what leaders can do. What about followers? If you’re a team member and you’d like to add positivity to your team, what might you do?


Read more...

Buyer's Remorse

September 2014
Tuesday, August 26, 2014

Parents and students paying for college today are like homeowners who bought a house just before the housing bubble burst.


Read more...

Two sides of the coin

Contributed Blogs
Monday, August 25, 2014
0825 thumb moneyBY JASON NORRIS | OB GUEST BLOGGER

Ferguson Wellman’s investment views on the economy and capital markets.


Read more...

Is this employee right?

Contributed Blogs
Wednesday, August 13, 2014
081314 thumb employeefeelingsBY TOM COX | OB BLOGGER

When I say, “Your Employee is Always Right,” I do not mean “right about the facts,” but rather “right about how they feel” and “right about how they want to be led.”


Read more...

Video: The 100 Best Survey

News
Thursday, August 28, 2014

100-best-logo-2015 500pxw-1OB Research Editor Kim Moore shares some pointers about the 100 Best Companies to Work For survey.


Read more...

Gender Code

September 2014
Tuesday, August 26, 2014
BY COURTNEY SHERWOOD

Janice Levenhagen-Seeley reprograms tech.


Read more...

Register for 100 Best Companies survey

News
Wednesday, August 20, 2014
OBM-100-best-logo-2015 150pxwBy Kim Moore | OB Editor

The 2015 survey launched this week. It is open to for-profit private and public companies that have at least 15 full- or part-time employees in Oregon.


Read more...
Oregon Business magazinetitle-sponsored-links-02
SPONSORED LINKS