CEO Cash and Stock-Based Compensation Changes, Layoff Decisions, and Shareholder Value

The chief executive officers (CEOs) of firms announcing layoffs receive 22.8% more total pay in the subsequent year than other CEOs. The pay increases result almost entirely from increases in stock-based compensation and are found to persist. In addition, layoff announcements are accompanied by shareholder value increases averaging $40 million to $95 million. One-time labor cost savings from layoffs average $65 million. We conclude that CEOs receive pay increases following layoffs as rewards for past decisions and to motivate value-enhancing decisions in the future.