NEW YORK - While firing thousands of workers and
closing plants to cut spending to the bone, there is one
expense few chief executives have sacrificed as the U.S.
economy stumbles toward a recession: their own salary.
Though a pay cut by top executives may not solve a
company's financial troubles -- it's likely to save only
thousands of dollars compared with millions that can be sliced
through layoffs -- some contend it can send a message of
solidarity to workers worried about their own jobs and
Behind a pay cut, said Fred Cook, chairman of Frederic W.
Cook & Co. Inc., an executive compensation firm, is the notion
that ``sacrifice and pain should be shared'' by all.
``If you just cut the CEO's salary in half, and make no
other changes, it doesn't make any difference because it's too
small an item,'' said Cook, who has seen little evidence of pay
cuts in this downturn. But clearly, he said, ``It's symbolic.''
To be sure, a number of executives will see their bonuses
slip -- or disappear altogether -- since many are tied to
performance. Ford Motor Co., which is cutting up to
5,000 white-collar jobs in North America, is one that won't
hand bonuses this year to 6,000 top executives, including Chief
Executive Jacques Nasser.
But few in the auto industry or any other business have
followed the lead of Lee Iacocca. As head of Chrysler in the
late 1970s, Iacocca took just a $1 salary as the car company
struggled to stay out of bankruptcy.
TIME FOR SOUL SEARCHING
One executive who has taken a cue from Iacocca is Cisco
Systems Inc. CEO John Chambers, who voluntarily cut
his salary to $1 a year in April. Cisco, which is lopping off
8,500 jobs, paid Chambers a salary of $323,000 and a bonus of
$1 million in the fiscal year ended July 29, 2000.
Reeling from the attacks last week on the United States and
a slowdown in travel, the airline industry has also seen some
executives take pay cuts in the past two weeks.
Jonathan Ornstein, chairman and chief executive of Mesa Air
Group Inc., said he and the company's president would
cut their base salaries by half while the rest of management
would take a 20 percent cut. The company is slashing 700 jobs.
Frontier Airlines, while announcing 44O job
losses, said it cut executive pay by 20 percent to 40 percent.
But executives at the nation's largest carriers, which have
announced sweeping layoffs, have not publicly unveiled plans to
trim their own salaries.
United Airlines, a unit of UAL Corp. , and American
Airlines, a unit of AMR Corp. , announced jobs cuts of
about 20,000 each this week. Boeing, the world's top jet maker,
said it would lay off between 20,000 and 30,000 workers.
But when unveiling the job cuts, none of the companies made
mention of executives taking lower salaries -- a fact that may
not sit well with employees or the public.
``I think that each and every one will have to do some soul
searching and come up with the answer to what is the value of
being aligned with employees,'' said Judy Fischer, managing
director of the Executive Compensation Advisory Services in
WORKING TO RIGHT THE SHIP
While thousands of this week's layoffs have related to
airlines, job cuts over the course of this year have been
spread across nearly every U.S. business.
Chemical company DuPont Co. has announced 5,500
layoffs without mentioning executive pay cuts. International
Paper Inc. , Lucent Technologies Inc. and EMC
Corp. have also announced big layoffs. None gave an
indication at the time of the layoffs that top management would
cut base salaries.
Given worries about a recession after last week's attacks,
a gesture by CEOs may mean that much more to workers, said Bill
Patterson, the director of the office of investment for the
AFL-CIO, a union which represents about 13 million workers.
``Worker loyalty is particularly important at this moment
when there's so much uncertainty about the direction of the
economy,'' he said. Now, he added, is a good ``opportunity
to have shareholders demand parallel sacrifices.''
But Fischer, of Executive Compensation Advisory Services,
said one reason that many CEOs don't take salary cuts during
tough times is that overall compensation packages -- including
stock options and bonuses -- are already tied to profits.
Another reason, she said, is executives tend to work
hardest when business heads south.
``In good times, nobody questions a CEO salary. Now we are
calling on executives to do one mean task and giving them a lot
of responsibility to bring a company out of troubling times.
``They're working more than they ever had to in terms of
righting the ship,'' she said.
Copyright © 2001 Reuters Limited.