Job Security in the Midst of Unemployment

While the latest unemployment figures indicate a jobless rate of 9.7 percent nationwide, there's one area of the economy where job security has never been better, and pay is on the rise. While the rest of workers suffer through pay and benefit cuts or slowdowns, for the chief executive officer (CEO), life looks pretty solid.

"Business Week" is reporting that turnover rates among CEOs have experienced double-digit declines. With companies reluctant to make any big shifts in a shaky economy, CEOs have been hanging on to their jobs at astounding rates even as they apply drastic job cutting measures to the fellow employees of their own companies.

Not only has job security improved for CEOs, in many cases, senior executives continue to be richly rewarded. Although it is true that, as a group, corporate executives saw their compensation decline by 7.5 percent, for many CEOs, life continues to improve, even as their companies experience major shrinkage in income.

Just a few examples include the CEOs of American Airlines, Hewlett-Packard, and oil company ConocoPhillips. At American Airlines, CEO Gerard Arpey earned $3.4 million (with a salary that has risen every year since 2005) while another 1,600 American Airlines employees will be jobless by year's end. At Abercrombie & Fitch (where stock fell more than 70 percent due to the severe decline in retail sales), CEO Michael Jeffries enjoyed a pay increase of nearly 40 percent last year, even as he made cuts that resulted in a 9 percent reduction in his company's staff.

Indeed, many executives are rewarded precisely for cutting staff and trimming costs. Hewlett-Packard CEO Mark Hurd, who pulled in $42.5 million last year laid off 6,000 workers in the second quarter of 2009, and slashed the salaries and benefits of the remaining workers by 5-15 percent. Like American Airlines, who promoted the slogan "Share the Pain, Share the Gain" when pay cuts of nearly 50 percent were enacted in 2003, apparently not everyone in the company shares the pain equally.

Even those executives, like Vikram Pandit of Citigroup, who make a show of taking salaries of $1 per year until the company improves, hide the true facts: Pandit, for example, made $10.8 million in other compensation last year, despite staggering job cuts of more than 50,000 Citigroup employees. So, too, has Larry Ellison of Oracle, jumped on the $1 per year bandwagon. In truth, however, most of his salary comes from the benefit side of the equation, and last year, Ellison made $56.8 million.

The underlying issues here speak to not just the astronomical heights executive pay has risen (for example, John Gutfreund, former CEO of Salomon Brothers, was once the highest paid executive on Wall Street at $1 million a year in the mid-1980s), but the issue of rewarding CEOs who have failed their companies repeatedly. While the average worker (still employed, if lucky) is expected to tighten his or her belt and be grateful for still having a job, company leaders face few of the same consequences.

Does this make economic sense? It seems counter-intuitive to reward someone for a mediocre or even poor performance. While economists predict that this type of inequity will only result in a backlash by workers and stock holders, so far there's been little evidence of a mutiny. As Edward Lawler III, director of the Center for Effective Organizations at USC noted to "Business Week," corporate executive officers "may be the only people [who will come through] the [economic] downturn in good shape."