Reference no: EM132750608

Conflict Statement Introduction

• It is unacceptable that Fortune 500 companies are continuing to give their corporate executives bonuses, raises, and increased stock options while thousands of their employees are left jobless due to cutbacks and layoffs.
• With the COVID-19 pandemic still in full swing, many companies around the world have been forced to lay off thousands of their employees. However, while millions of people are losing their jobs, on unemployment insurance, having their hours cut, forced to take positions beneath their education level, or working in essential jobs risking their health and safety, many corporate executives are being well-compensated, still receiving their raises and bonuses. It's becoming easier for top executives to portray themselves as people who care about their employees that are fighting against income inequality while unemployment is skyrocketing and the stock market is booming (Kelly, 2020).

History

• Even before the outbreak of COVID-19 that began this year, companies were laying off employees while still generously compensating corporate executives. In 2019, AT&T's CEO Randall Stephenson received around $32 million in compensation while around 2,000 AT&T workers lost their jobs (Kelly, 2020). When Sears filed for bankruptcy in 2018 and laid off around 2,900 employees, corporate executives received $25.3 million in bonuses (Siemaszko, 2018). In return, the employees who were laid off did not receive any severance pay after Sears announced they were filing for bankruptcy. In early 2018, Walmart laid off around 10,000 employees and closed 63 Sam's Club stores. In the annual shareholder meeting later that year, shareholders voted to increase CEO Doug McMillon's pay by $500,000 (DeRose, 2018).

COVID-19 Pandemic

• During COVID-19, thousands of businesses have had to lay off employees. However, while hundreds of thousands of people are losing their jobs, many senior executives are still earning bonuses or having their salaries restored. The Walt Disney Company is guilty of doing this recently. In the early stages of COVID-19, Disney announced that their senior executives would be taking salary cuts while beginning to furlough the majority of their cast members. In mid-August 2020, it was announced that senior executive salaries would start to be restored at the end of August (Figueroa, 2020). During this announcement, thousands of cast members were still furloughed and not receiving any paycheck from Disney due to park closures and limited park hours and operations at open resorts. On September 29, 2020, the company announced that they would be laying off 28,000 employees, with the majority of the layoffs coming from the two U.S. parks (Barnes, 2020). Senior executives received backlash with the layoff news because of the announcement a month before that their salaries were being reinstated.
• Other companies such as Tenet Healthcare, J. C. Penny, Macy's, Neiman Marcus, Hertz, and GNC are all guilty of laying off thousands of employees during the COVID-19 pandemic but are continuing to pay executives (Olya, 2020). Tenet Healthcare furloughed around 3,400 employees in April, and even though CEO Ronald Rittenmeyer gave up three months of his pay, about $390,000, he is still set to receive a bonus of $875,000 by the end of the year (Olya, 2020). J. C. Penny paid $8 million in executive bonuses before they filed for bankruptcy in May. During the pandemic, they furloughed 78,000 of their 85,000 employees and have announced that they are permanently closing 151 stores and laying off 1,000 employees (Olya, 2020). Neiman Marcus furloughed 11,000 employees in March yet continued to pay out $10 million in executive bonuses. Macy's paid executive bonuses of $9 million while cutting 3,900 jobs. Hertz paid $1.5 million in bonuses to senior executives after they permanently cut 14,000 jobs. GNC has closed over 1,350 stores within the U.S., and five days after filing for Chapter 11 bankruptcy in late June, they paid CEO Ken Martindale a $2.2 million bonus (Olya, 2020).

Theory

• In an organization, decisions are made at all levels and important decisions tend to be made at higher levels. The decision making approach to organization accepts the hierarchical form of organization. Contingency theory explains how rational individuals should behave under risk and uncertainty (Kinicki, 2018). The basis for contingency theory in management is that there is no one best way to handle any task or process. In this case, the COVID-19 pandemic hit businesses that corporate executives needed to arrive at tough decisions - which is to lay-off many employees. This theory allows higher executives the freedom to make decisions based on current situations and decision-making means the adoption and application of rational choice for the management. Despite many corporate executives being well-compensated, still receiving their raises and bonuses, the decision to lay-off many employees still pushed through because position power dictates how able a leader is to exercise authority onto a group.

Problem 1: Why would current business management set up this type of reward system? If executives cut their pay and kept workers, the stock would fall and everyone would lose. If they make cuts and remain profitable or maintain some profitability, their stock remains high; and thus, causes bonuses and higher pay.