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"When A Pay Cut Pays Back": A Commentary

By Merrie Spaeth

Dallas, TX – September 11th changed our thinking - in lots of ways. Here in the Dallas/Ft. Worth area, the CEO of American Airlines, Don Carty, has given up his salary and bonuses for the rest of the year in light of the company's 20,000 layoffs. This is a very smart move. It's real leadership rather than leadership talk. Leaders do not benefit while their people suffer. It sends the wrong message when top management freezes or cuts employee salaries, lays off people, closes plants, and then they pay themselves more. In 1985, I came to Dallas to work for Republic Bank - which was sliding down the tubes of challenging economic times, greased by willfully blind management. The cuts came right and left, and the top guys gave themselves 'performance bonuses?' They performed all right - a vanishing act for the bank.

We may be seeing a new trend. Agilent, a Lucent spin-off, cut everyone's pay 10%, including the CEO's. Even the head of the hotel employees and restaurant employees union has cut his salary 20%.

Nucor, a South Carolina steel company, cut executive bonuses - some two-thirds of their compensation - and, like Southwest Airlines here, announced a no-layoff policy. Both companies claim this generates fierce employee loyalty, and the customer service it produces. And I think they're right.

For some decades, executive pay and perks have skyrocketed. CEOs claimed they were rewarded for their brilliant business decisions. Now it's clear some of those gains came from the general economic environment. Particularly as the airlines beseech Congress for help - which again I think they should get - it's the right economic and right moral question: should highly-paid people be cut back?

I am troubled by who does the reducing, and by how much? Having government do it is the wrong answer. It needs to be voluntary, and part of a real commitment to stewardship. But it needs to be done. The message needs to be: We're a team. We profit together. We tighten our belts together. If we ask taxpayers for help, we ask more of ourselves.

The airline bailout legislation has a few restrictions: executives who made $300,000 or more can't make more than this for two years; and if they are severed, they can't be given more than two years' salary. I suspect that's still going to sound very rich to people who have lost their jobs. The CEO of Boeing made almost $20 million last year; his counterpart at Continental pulled in $13.7 million. I'm always asking, "Who's your audience?" These CEOs aren't trying to impress their customers, employees or shareholders. They're trying to impress other CEOs.

There are some executives who have made a phenomenal difference in their companies - Lou Gerstner, CEO of IBM comes to mind. But there are many, many others who are just 'competent,' - but want to be paid like top stars. Or, like Al Dunlop at Sunbeam and Scott Paper, they are incompetent and rapacious. The true luminaries should be rewarded with ownership. The others - this is a great time to exhibit true leadership - take the cutbacks first. Then ask your employees to follow suit.


Merrie Spaeth is a communications consultant in Dallas.