Starbucks recently announced that it will close 300 stores, affecting 6,000 employees, and lay off 700 employees who don’t work in stores. This news was an unfortunate follow-up to the coffee store chain’s 600 store closures and layoffs last summer. But the latest announcement contained something new: management skin in the game.
In addition to the cuts, Starbucks’ Chief Executive Officer Howard D. Schultz will reduce his salary from $1.2 million a year to less than $10,000 a year.
Mr. Schultz joins the recent ranks of corporate leaders who have realized that in order to turn around a struggling organization, it’s not enough to sacrifice the workers. In December, Motorola’s announcement of a temporary halt to matching 401(k) contributions and a permanent freeze on U.S. pension plans was accompanied by news that that co-Chief Executives Greg Grown and Sanjay Jha are taking 25 percent cuts to their 2009 base salaries. Mr. Brown will forfeit his 2008 bonus, while Mr. Jha will reduce his guaranteed bonus. In addition, FedEx has announced base-salary cuts to CEO Frederick Smith’s pay along with that of additional senior executives.
These announcements indicate that corporate America is finally beginning to understand that leaders need to demonstrate that they are willing to contribute or they risk the wrath of both employees and customers. Remember the automobile CEOs’ ill-fated trip to Washington, D.C.? The fact that President Obama has proposed imposing a $500,000 compensation cap for the most senior executives of companies seeking federal bailout funds indicates that he, too, understands the shadow that a leader’s pay casts for the entire organization.
“The fact that a $500,000 compensation cap has been imposed upon the most senior executives of companies seeking President Obama’s federal bailout funds indicates that the president, too, understands the shadow that a leader’s pay casts for the entire organization.”
By Jenny Schade, president, JRS Consulting. JRS Consulting helps organizations dramatically increase attraction among customers and employees. Jenny Schade has interviewed more than 1,000 employees while guiding organizations through turbulent change. Get more tips from the free JRS newsletter.
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