ILR Impact Brief - CEOs and Layoffs: Sometimes the CEO Suffers Similar Fate

Abstract

Mass layoffs have become an all too familiar occurrence in the United States; statistics indicate that an average of 5.7% of all employees lose their jobs in a typical year. And while many cutbacks were once meant to be temporary – that is, until demand picked up or the plant was retooled for a new model or new product – these days they more often have a permanence intended to reduce costs and boost efficiency. Companies may expect certain outcomes from workforce realignments, such as higher profits and greater productivity, but sometimes the future of the company’s chief executive is also at stake. Previous academic studies have found links between CEO tenure and company performance. For example, researchers have shown that the probability of management turnover decreases as a company's stock price increases. In a slight variation on this theme, researchers have also shown that CEO resignations/firings tend to rise as a company’s prospects deteriorate. This particular study goes a step further and explores the relationship between layoff announcements (another indicator of company performance) and chief executives' term in office.