Looking to Thwart Layoffs, Executives Are Taking Pay Cuts

​Challenging economic times, soaring prices and fears of a recession are leading some major employers—including Yahoo and Disney, both of which announced cuts in February—to announce layoffs. And while some downsizing of rank-and-file employees is inevitable, a number of company leaders are trying to avoid such downsizings.

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A somewhat surprising strategy being embraced? A large number of executives say they are cutting their own salaries.

New data reveals that most executives (66 percent) have accepted a pay cut in the past six months, with the overwhelming majority of those (94 percent) saying the move was to prevent or reduce layoffs, according to a survey of 1,000 U.S. executives at companies with more than 100 employees from ResumeBuilder, a Seattle-based firm specializing in resume and career advice. Additionally, 67 percent of executives responding to the survey say other executive employees at their company had their salary cut in the past six months.

"I wouldn't say this is common practice, but it does seem like more are considering this option now," said Stacie Haller, chief career advisor at ResumeBuilder.

Forbes reported that a number of top CEOs are taking pay cuts, including Sundar Pichai of Alphabet, Tim Cook of Apple and Jamie Dimon of JPMorgan. And this week, Zoom CEO and founder Eric Yuan announced he is taking a 98 percent pay cut and forgoing his corporate bonus this year. Yuan's announcement comes as the tech company also said it is laying off 15 percent of its workforce.

The data comes as layoffs are increasing. The ResumeBuilder survey, for instance, found that 78 percent of respondents say their company has had layoffs in the past six months, while 70 percent expect layoffs in the next six months.

Of executives who took a pay cut, 37 percent received a 20 percent reduction in their salary, more than one-quarter of respondents accepted a pay cut of 30 percent or more, and roughly 5 percent took a 90 percent or more decrease in wages, the data found. Among executives who have not taken pay cuts, 36 percent say they would "definitely" accept a pay reduction to prevent layoffs, while 31 percent say they "probably" would.

"True leaders put their people first, and taking a pay cut to prevent layoffs is a great show of supporting their teams," said Kathleen Quinn Votaw, CEO of TalenTrust, a Denver-based recruiting and human capital consulting firm. "I wish more leaders would be more transparent about how they are reducing expenses to retain their teams, including any cuts in leadership expenses."

Empathy in Action

There are good and bad aspects to the practice of CEOs and other executives sharing the pain of hard economic times, experts say. The upside, Haller said, is the perception that "senior management has skin in the game" and it seemingly softens the effects of potential cuts in the organization.

The practice also can give the impression that company and senior executives are empathetic leaders who are trying to ease the burden on lower-paid employees, said Nicole Price, a professional coach and author of the soon-to-be-published Spark the Heart: Engineering Empathy in Your Organization, (Forbes Books, 2023). Price added that the average salary of a Fortune 500 CEO is $15.9 million a year. By contrast, the average American would experience financial catastrophe from a single emergency that exceeds $600.

"There is no one-size-fits-all approach to avoiding layoffs, but empathetic leadership cannot be overlooked as an innovation strategy," she said.

Indeed, employees overwhelmingly are behind the idea of executives taking a pay cut. A survey of more than 10,000 employees conducted late last year by consulting firm Gartner found that 77 percent of employees say senior executives should be willing to take a significant pay cut before they cut jobs or make changes to employee compensation. By contrast, just 31 percent of employees said they would be willing to take a temporary pay cut if it meant avoiding layoffs, Gartner found, and most employees would only do so for three months or less.

But even though getting executives to reduce their pay may seem like a smart strategy, it may not stop some employees from seeing the bigger picture: that some employees are taking pay cuts and the company may be in danger.

"The downside is that cutting compensation for anyone is not a way to keep up morale and retain staff, regardless of your position within an organization," Haller said. "It sends a message to all employees that [they] may be at risk at some point, and some may consider making a move."

Haller added that most employees would rather move to a "growing solid company" where they do not have salary cuts hanging over them—which is possible in a job market that, largely, is continuing to stay strong despite some layoffs.

"The market is still ripe, with several positions open for every job seeker, and C-level executives are on the move as well," she said. "Many still have choices, and cutting salaries does not bode well for retention."