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

63 Pages Posted: 10 Mar 2022 Last revised: 22 Jun 2023

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: May 18, 2023

Abstract

We examine whether managers commit to reducing their pay or enact other positive worker-friendly actions after laying off employees or cutting their benefits during an economic crisis, a concept we call “sharing the pain.” Using a unique database of company actions during the recent pandemic, we study 3,097 positive and negative actions targeted at workers taken by 629 S&P 1500 firms in 2020. Our findings indicate that economic considerations such as exposure to the pandemic and poor stock performance, high within-firm pay disparity, and peer effects are the primary determinants of management’s decision to share the pain of employees. Proxied by MSCI’s human capital theme score and a signatory to the Business Roundtable Statement, stakeholder concerns 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 higher stock price reactions or future stock returns performance. Further analyses 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 pandemic. The evidence suggests that sharing the pain is largely symbolic, driven by economic considerations rather than stakeholder concerns, and has no significant implications for firm value.

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 (May 18, 2023). 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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