Sharing the Pain between Workers and Management: Evidence from the COVID-19 Pandemic and 9/11 Attacks

61 Pages Posted: 10 Mar 2022

See all articles by Mansoor Afzali

Mansoor Afzali

Hanken School of Economics

Urooj Khan

University of Texas at Austin - Red McCombs School of Business

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Date Written: February 7, 2022

Abstract

We examine the rhetoric in ESG literature that managers “share the pain” of employees who are laid off or whose benefits are cut by committing to reduce CEO pay or by enacting other positive worker friendly actions during the Covid crisis. Using the exogenous shock of the COVID pandemic and a unique database, we examine more than 4,062 positive and negative actions targeted at workers taken by the S&P 1500 firms in 2020 in response to the pandemic. Our findings indicate that economic considerations such as exposure to the pandemic and poor stock performance prior to the pandemic are the primary determinants of management’s decision to share the pain of employees. Stakeholder concerns, proxied by higher employee-related corporate social responsibility scores, lower pay disparity between the CEO and the median employee, or a signatory to the Business Roundtable Statement, are not associated with managers’ sharing of the pain. Evidence of such pain sharing from another unexpected crisis from the past –the September 11, 2001, terrorist attacks – is remarkably similar. Sharing the pain is not associated with future stock returns performance. Finally, we show that the median CEO’s wealth increased nearly 18-fold relative to the CEO pay cut for firms that enforced CEO pay cuts and laid off employees during the Covid crisis. The paper adds to growing evidence that U.S. firms do not appear to “walk the talk” of concerns for stakeholders.

Keywords: ESG, sharing the pain, pay cuts, layoffs, CEO wealth, corporate social responsibility, stakeholder capitalism, BRT signatories, COVID, 9/11

JEL Classification: J33, J63, M14

Suggested Citation

Afzali, Mansoor and Khan, Urooj and Rajgopal, Shivaram, Sharing the Pain between Workers and Management: Evidence from the COVID-19 Pandemic and 9/11 Attacks (February 7, 2022). Available at SSRN: https://ssrn.com/abstract=4053005 or http://dx.doi.org/10.2139/ssrn.4053005

Mansoor Afzali

Hanken School of Economics ( email )

FI-00101 Helsinki
Finland

Urooj Khan (Contact Author)

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

HOME PAGE: http://https://www.mccombs.utexas.edu/Directory/Profiles/Khan-Urooj

Shivaram Rajgopal

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

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