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

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.