Chief executive officers, when laid off, are heavily compensated, unlike the other employees in an organization. It is very common and highly practiced in today’s business. Mostly this is fueled by other factors that are outside the interest of the company. Many companies lay off their chief executives after there is a gross believe among the board of directors that the chief executive officers have underperformed. Such a case was demonstrated by Ford limited in 2002 when they laid down Jacques Nasser. They also believe that they cannot help the company back to where it belongs or where it should be. The massive compensation may be as a result of the regulations by the labor laws in the country the company operates. These factors may be the following.
The chief executive officers are heavily compensated during their working period with the company and entitled to hefty incentives during their time of service (Anand, 2008,p.66). The massive incentives make them pocket a lot of money and other bonus such as shares. The labor laws state that employees should be compensated up to a minimum of the half of their basic salary and dearness allowances entitled to them if the employment did not cease (Aswathappa, 2002, p.511). The chief executive officers being heavily compensated for their services, they receive massive compensations even after being disgracefully laid down. The junior employees receive less for the compensation because their salaries every month tend to be lower than those of their chief executives. The law requirement leaves companies with no option because they lay off disgraced employees like Ford did in 2002 without planning after the company makes continuous losses. The laying off do not give the company a chance to wait for the employment tenor period of the CEO to end due to the poor performance. The risks of waiting are very high for the company may have a bad public image and make more losses leaving the board of directors with no choice but to pay massive compensation to the disgraced chief executive officer.
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The labor laws also require companies to give their employees a written notice of one month before the termination of their employment if they have worked for less than one year (Aswathappa, 2002, p.512). If such a notice has been given, the employee is only paid for the month during the notice. It might be the interest of a company to lay off a chief executive officer. It can make the cost of laying off a bit lower than it would have been. Mostly this is not the case due to the influence the chief executive officer of any company may be having. Such a notice may have a very negative impact on the business during the period of such notice. Other employees can be given a notice prior to their retrenchment, and the effect of such a notice is always not as adverse as a notice served to the CEO. Due to this the employees receive few weeks’ compensation contrary to what the CEOs get as compensation for the termination.
The Public image must be upheld to ensure that the company must attract the brightest and the best candidates that the company wishes to have (Anand, 2008, p.66). Ethically, before a new chief executive officer accepts the appointment, they should communicate with their predecessor and listen to their view into the new challenge. When the outgoing CEO is treated roughly, the company may be unable to attract a worthy replacement for the best experience. In the event, the termination of employment of the top management and an inadequate compensation, the reputation of the company and the attraction of highly qualified employee is highly affected. The management is forced to compensate the disgraced chief executive officer with lucrative amounts of money so that they can get a worthwhile replacement for the chief executive office.
- Aswathappa, K. (2002). Human resource and personnel management. New Delhi: Tata McGraw-Hill Pub.
- Anand, S. (2008). Essentials of corporate governance. Hoboken, N.J.: John Wiley & Sons.
