I hadn't planned to write anything about downsizing for a while until I read in the papers that Robert Allen, the CEO of AT&T, received $16 million in salary and stock option compensation this year. He was given this $16 million at the time his company laid off 40,000 workers. When questioned about it, he said that he deserved every penny.
One of my friends who doesn't understand downsizing was outraged. I tried to explain to him how it works."It takes a very talented executive to lay off 40,000 employees, and $16 million is not out of the ballpark if you want someone to play hardball."
MacDougal asked, "What is Allen going to do with $16 million?"
I told him, "He has to buy milk and bread, and corn flakes and yogurt, just like everybody else. You have to remember that $16 million isn't what it used to be. What's important about the layoffs is that Wall Street now views AT&T as a serious company. The people who were pink-slipped don't count. If Wall Street sees that the phone company is paying its chief $16 million, they have confidence in the management.
"They know that you don't hand paychecks like that to the big guys unless the company has great plans for the future. Wall Street is in the tea-leaf-reading business, and they consider big salaries for big people to be a good sign, even if middle management is asked to walk the plank."
MacDougal was not to be persuaded.
"I still don't understand what he can do with the whole $16 million. How many Princess phones can Allen have in his house? How many cellular phones can he use in his Mercedes Benz? How many golf balls does a CEO need?"
I tried to be patient and replied, "Allen has to buy shoes for his children, bus tokens for his wife, and he probably has a big heating bill. I very much doubt that any of the money will be spent on luxuries."
MacDougal had the poor taste to bring up the 40,000 people who had been laid off. "Don't you think they feel wounded to see the man who dumped them receiving $16 million for being their executioner?"
"When you downsize, you can't be sentimental about people. Allen claims that he had to fire the 40,000 to save the company. If this is true, we Americans have to bless him for saving our long-distance lines."
"Do you trust him?" MacDougal asked.
"Maybe he was laying it on a bit thick, but he had to say something or the AT&T Credit Union would have refused to cash his $16 million check."
MacDougal wasn't giving up. "Who decides how much a CEO is going to get for laying off thousands of people?"
"The board of directors."
"Who chooses the board of directors?"
"The CEO."