The CEOs pay cut after layoffs

In Brief: Sundar Pichai, Google CEO, plans to take less pay this year, joining Jamie Dimon and Tim Cook in trimming pay. 

Covering Google, JP Morgan and Apple.

In the past few years, tech companies have been at their heyday. Stocks were booming, even more, flourishing during the pandemic. It was a job-filled environment, and tech stocks were doing well as well. However, it was fun while it lasted, with Silicon Valley facing its most severe stock market downturn since 2008.

 

Suddenly, wave news of layoffs and a crash in the stock market took over the tech world. As of last week, even seemingly powerful companies like Google, Meta, Amazon, and Microsoft were affected by it.

Why are Tech Companies having a downturn?

The tech industry is particularly vulnerable during economic downturns, because the majority of these early-stage companies are not profitable, and are relying on venture capital investments to cover expenses while they focus on rapid growth – something that is much more challenging when consumer demand slows down.

 

The slowing economy has prompted investors in a number of companies to call for the compensation of their executives to be lowered. Pressed by the pressure, some businesses have acquiesced to the demand.  

 

 

A pay cut for Google’s top executives is part of the company’s cost-saving measures, as announced by CEO Sundar Pichai last Monday, January 23, 2023. 

 

Sundar Pichai highlighted that in senior roles the compensation was linked to the company performance and all roles above the senior vice president level will witness a “very significant reduction in their annual bonus.”

 

The decision took place after Google’s major layoff where Sundar Pichai sent out an email to Googlers on January 20, 2023, announcing that the company had decided to reduce its workforce by 12,000 roles. He further addressed his deep sorrow and will take responsibility for the company’s current position.

 

Alphabet Workers Union (AWU) also criticized the company’s decision, saying it was unacceptable behavior for an organization that earned $17 billion in profits last quarter. Even though there is a pay cut for the executives, it is not really a soothing point for those who were laid off. 

 

 

“It’s appalling that our jobs are first on the chopping block so shareholders can see a few more points in a chart next quarter,” – Alphabet Workers Union 

 

 

 

 



After the announcement, Google’s share price rose up 2% and close at $99.79.

 

Tim Cook, Apple’s CEO, announced in 2023 that his compensation would be reduced by 40%.

 

 

 

 

There will be a significant increase in the number of stock units awarded to Tim Cook and linked to Apple’s performance, which will increase from 50% to 75% by 2023, as part of the changes. 

The compensation for Cook for the year 2022 was $99.4 M, which included a $3 M base salary, about $83 M in stock awards, and a bonus of $2 M. This was a slight increase over 2021 when his total pay package totaled $98.7 M. It is estimated that the 40% cut will result in an approximate cut of his pay to $49 M.


The $49 M in target compensation includes the same $3 M salary and $6 M bonus as in 2022, as well as an equity award value of $40 M. This means, his actual total compensation for 2023 could fluctuate based on the company’s stock performance.

 

 

 

 

The price of Apple’s stock on January 12, 2023 was $134.76. Shares of the iPhone provider company were constantly increasing. The stock has been on an uptide wave for the last two weeks and is currently trading at $142.53, up 5.75%. 

 

Furthermore, Apple announced it will enter the metaverse.

 

JP MORGAN (JPM:NYSE)

 

 

Apart from the previous two CEO, Jamie Dimon had his pay cut, not by percentage. He will take home the same base pay as the previous year but with no additional “special award”. He’ll receive total compensation of $34.5 M, a $1.5 M salary plus a bonus of $33 M. 

 

The cut is a significant one since in 2022, Jamie received a special award worth $50 M and a $52.6 M special award in 2021.



 

On the other hand, JP Morgan’s share price started to climb after its fall on January 13, 2023 from $143 to $134.75 on January 19, 2023. The bank’s share price starts to bounce after it stabilized on January 19-20, 2023. 

CEOs taking a pay cut: Does it make a difference?

It has been observed that companies function more effectively after a pay cut for their CEOs is implemented. When the boss’ foregone salary is used to subsidize raises for themselves since this entails the boss taking on more responsibility and responsibilities.  It might lead to an invisible force to enhance the company to reach back to their former pay compensation. Most employees also tend to work with a new determination to bring back the company to its previous earning point.

For instance, Gravity Payments, is a credit card payment processing company in Seattle. Dan, Price, the head of Gravity Payment took the total opposite approach as he took a million dollars cut and introduced a $70,000 minimum salary base for all employees.

 

Dan Price mentioned in 2021, “After our $70k min wage: 76 percent of employees are engaged at work—2x the national average, customer attrition fell to 25 percent below the national average, we expanded to a new Boise office & enacted $70k min wage there, our highest-paid employee makes 4x our lowest-paid employee—down from 33x”.

Bottom Line

It is not scientifically proven whether the act will aid the company in the long run, or heralds more trouble is not entirely clear. Nevertheless, psychology suggests positivity– it leads to action of the employees to be more likely to put in extra effort and time.

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