ComPRehension

Professional development and training blog of the Public Relations Society of America (PRSA)
March 6, 2009

Announcing Layoffs? Put Some Management Skin in the Game


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.”

Jenny Schade, president, JRS ConsultingBy 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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  • http://www.davisandco.com/blog alisondavis

    Reducing their own pay is a great way for executives to demonstrate that they feel the organization’s pain, but it should be just the beginning. It’s high time that senior leaders break down the boundaries that have long put them in an ivory tower and prevented them from having access to employees’ ideas, questions and criticism. Leaders need to tear down the executive suite and relocate to a cubicle or small office out on the working floor (taking a cue from NYC Mayor Mike Bloomberg). They need to eat lunch in the cafeteria. Fly commercial. Hang out.

    This isn’t just about symbolism (although it is symbolic); it’s about access. The closer a CEO gets to employees, the more he or she will not only relate to them, the more the CEO will benefit from employees’ intelligence and experience. To survive in this economy, companies need to do more than cut back—they need to be smarter, nimbler and more creative than ever before. And they need every employees’ contribution to do so.

  • http://www.JRSconsulting.net jschade

    Great points! I agree completely. Layoffs alone aren’t going to turn around an organization; reducing executive pay is a start, but not enough. It’s critical to engage employees and collaborate on achieving business goals. Thank you for sharing these very astute thoughts.