Executive Excess 1996: How Wall Street Rewards Job Destroyers

The relationship between corporate layoffs and the enrichment of corporate executives offers insight into the growing disconnect between the interests of Wall Street and those of ordinary Americans. As corporate profits skyrocket in an age of global economic opportunities for firms, real wages of U.S. workers stagnate, inequality rises, and an alarming number of large firms continue to lay off full-time workers.

This report examines a new and disturbing trend in the perverse relationship between Wall Street and Main Street: the positive reaction of Wall Street to corporate layoffs.

KEY FINDINGS:

1. Layoff Leaders Receive Higher Compensation. Of the 20 CEOs for whom data were available, 14 received raises in salary and bonus that were higher than the average increase for CEOs of large U.S. firms. The layoff leaders got an average raise of 13.6%, compared to 10.4% for top executives in general. By contrast, U.S. workers received an average raise in wages and benefits of only 2.9 percent in 1995, the lowest level in 14 years. (Inflation rose 2.8 percent in 1995, erasing workers’ meager gains.)

2. Wall Street Rewards Downsizing. The stock prices of 17 of the 22 firms rose or stayed the same the day of the announced layoffs. In only five cases did the stock price fall and, in two of these cases, Wall Street analysts stated that the fall was because the announced job cuts were less than desired.

3. CEOs of Job-Cutting Firms Reap Windfalls. The CEOs of the 22 top job-cutting firms in 1995 held a combined total of over $22 million stock options in their firms. As stock prices rose on the day of the announced layoffs, the value of the CEOs’ stock options rose a combined total of $37 million.