AOL Time Warner

Freeze Executive Pay During Periods of Downsizing

WHEREAS, AOL Time Warner announced the layoff of 2,400 employees (3% of the total workforce) in January, 2001. Shortly thereafter, the company reported the combined salary and bonus of the company’s six highest paid executive officers had risen between 8.9% and 25.2% the previous year, with the average executive enjoying a 16% increase in salary and bonus. Total compensation for the company’s CEO exceeded $73 million in 2000.

WHEREAS, when the company failed to meet its stated financial objectives, an additional layoff of 1,700 employees was announced in August, 2001. These cuts reached across the company, requiring many remaining employees to assume additional responsibilities and learn new skills.

WHEREAS, a growing number of American businesses are embracing the principle that corporate leaders should share in the sacrifice of cost-cutting and downsizing. In the face of disappointing earnings and the layoff of several thousand workers, Ford Motor Company announced that 6,000 top executives, including the company’s CEO would forego their 2001 bonus. Similarly, when faced with large layoffs in the airline industry the chief executives of AMR Corp., Continental, Delta and Southwest Airlines all agreed to forego cash compensation.

WHEREAS, there are several academic studies that indicate that increasing executive pay during periods of downsizing damages company morale, increases turnover among surviving employees and reduces productivity.

• Professor Kenneth DeMeuse of the University of Wisconsin – Eau Claire describes the corporate tendency to seesaw between periods of mass hiring and investment in training and periods of mass layoffs as "corporate bulimia." Professor DeMeuse compared Fortune 100 firms that laid off workers during the 1989 recession and found that job-cutters saw minor improvements in performance in the first year following the layoffs, but performance was far worse the second year compared to those that had not cut jobs.

• A 1992 study by the Haas School of Business at the University of California at Berkeley found that firms with the widest pay gaps had lower quality products and services.

• Firms with large pay gaps between CEOs and other executives experience executive turnover at twice the rate of firms with a more equal distribution of pay among executives according to a 2000 study by Notre Dame University .

WHEREAS, we believe that business success over the long term is enhanced when business is viewed as a shared enterprise in which both the rewards and sacrifices are fairly shared among all employees.

RESOLVED, shareholders request that the Board adopt an executive compensation policy that freezes the pay of corporate officers during periods of significant downsizing (layoffs involving the lesser of 5% of the company’s workforce or 1,000 workers). This pay freeze shall continue for a period of one year following the layoffs.

PLEASE VOTE FOR THIS RESOLUTION.

Responsible Wealth, 29 Winter Street, 2nd Floor, Boston, MA 02108.
Voice: 617/423-2148 Fax: 617/423-0191.
© 2001 Responsible Wealth. All rights reserved.