Photo: Canva
The Container Store’s CEO Satish Malhotra is voluntarily taking a 10% pay cut to help cover the cost of higher salaries for staff despite a revenue downturn.
Malhotra, who became CEO in February 2021, will have his base salary temporarily slashed from $925,000 to $832,500 as of Oct. 1 through March 31, 2024, according to a recent Securities and Exchange filing. After the six-month pay cut, Malhotra’s $925,000 base pay will be reinstated.
Last year, his compensation also included stock awards valued at $2.57 million.
The Container Store confirmed to The Dallas Morning News that Malhotra voluntarily made the decision in response to expectations of an annual merit raise for about 5,000 employees who survived a recent wave of layoffs.
Container Store sales fell 21.1% during the quarter that ended July 1 compared to the year before amid broader weakness in the home category. In May, the chain announced a cost-containment program that included the elimination of open roles and workforce reductions.
In the tech space, the CEOs of Zoom, Twilio, and Micron Technology have all recently taken salary reductions amid downsizing efforts, although Bloomberg notes that CEO compensation is heavily weighted toward stock awards and options. Under pressure from institutional shareholders, Apple’s CEO Tim Cook agreed to reduce his target compensation package this year by around 40% to $49 million.
A Gartner survey of 10,080 employees taken in September 2022 found that 77% of employees say senior executives should be willing to take a significant pay cut before they reduce headcount or make changes to employee compensation. Only 31% would willingly take a temporary pay cut themselves if it meant avoiding layoffs.
A survey of 1,000 U.S. executives taken this past January from ResumeBuilder found that 66% have accepted a pay cut in the past six months to prevent or reduce layoffs.
Stacie Haller, chief career advisor at ResumeBuilder, told SHRM that CEOs or executives taking salary cuts isn’t common practice, but she believes such moves can show accountability and empathy from the C-level. On the downside, seeing executives accept salary cuts may send a message across the organization that the company is in trouble and could also lead executives to seek opportunities elsewhere. She said, “The market is still ripe, with several positions open for every job seeker.”
BrainTrust
Cathy Hotka
Principal, Cathy Hotka & Associates
Patricia Vekich Waldron
Contributing Editor, RetailWire; Founder and CEO, Vision First
Peter Charness
Retail Strategy - UST Global
Discussion Questions
Should CEOs and other top executives at retailers be willing to take salary reductions amid downsizing efforts or to avoid layoffs? What do you think of the pros and cons of such a tactic on employee and C-level morale?
Poll
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Container Store was founded on the basis of ‘everyone being in it together’. In the past the company has consulted with employees and opted for salary cuts, especially for executives, to prevent redundancies. So these actions, by the CEO, are very much aligned with the brand’s DNA. Personally, I think it is a good decision that will boost morale and hopefully generate loyalty from staff. That said, this doesn’t negate the need for occasional layoffs and restructuring to keep the business efficient – indeed, Container Store has already made some of those tough decisions.
And the kind of C-level executives who would bail from the company after a move like this, per the last paragraph in the article, aren’t team players and business-builders that the company wants around anyway. Opportunistic execs who keep jumping ship for better offers are a big part of why many retailers can’t put together and execute coherent plans when business conditions change, as they always do.
Categorically, ‘Yes’ CEOs and other top executives should be willing to take salary reductions in an effort to avoid layoffs. The disparity between executive pay and employees continues to grow, and with these big pay packages comes responsibility. It turns my stomach to hear of companies laying off thousands of employees, even when the company is still very profitable, for the sake of placating Wall Street earnings targets. And while leaders have a responsibility to deliver shareholder value, they should also have an obligation to keep their employees employed. By voluntarily cutting their own pay, CEOs and executives send a strong message to workers that they care and are willing to put their money where their mouth is.
Strongly support this move. As the disparity between executive pay and front-line employees continues to widen, it’s nice to see an executive willing to accept a reduction for the benefit the larger good.
The signaling here is a lot more significant than the actual math. The $500,000+ that will be saved from the CEO’s paycheck isn’t going to go very far with 5,000 employees. But it is absolutely the right signal to send. It’s a very strong message that short term difficulties can be weathered in the name of long term objectives. I’ve been in environments with a strong sense of team, and I’ve also been in situations where the top tier had a “what have you done for me lately” attitude about lower tiers. The stronger sense of ‘team’ was always the better long term performer.
The irony is always in the “not me” mindset. 77% believe senior executives (someone else) should take a pay cut but only 31% would take a pay cut themselves. I believe we should address the problems we properly identify not ones we are convinced to see or emotionally charged to see. If we believe we have an executive pay problem then let’s address it head on otherwise this looks like window dressing, marketing and a lack of confidence in the organization. If an executive is being compensated fairly then a need to reduce the executive’s salary is an indication that the executive is no longer performing at the desired level. Maybe stock-based compensation has incorrectly focused executives on short term profit instead of long time value creation. Maybe that means we have a misalignment or an alignment to the wrong metrics. Regardless, cutting executive pay “temporarily” isn’t a solution. It’s a “temporary” appeasement to emotionally charged forces. In general, I believe this is a bad solution because it appears to be done for PR purposes in an environment that currently favors labor. Let’s identify the problem and solve it once and for all (or for a few decades until we find something wrong with it like we have with stock compensation).
Satish Malhotra sounds like a stand up guy, but then again, The Container Store is a stand up company. I have read plenty of articles over the years about its CEO working the sales floor along side front line staff, for days/weeks, not hours.
CEO salaries are out of hand these days. You have to wonder how many of those extra zeros are truly earned.
CEOs have a tremendous amount of responsibility. I believe each individual should be allowed to assess their own willingness to compromise on compensation. The board, however, needs to take this aspect of leadership into account during the hiring process so that they best align the right C-suite with the culture and company philosophy. The contract is ultimately what should decide compensation. I would re-evaluate how contracts are scripted making performance a variable for annual increases/decreases. If a CEO wants to take action beyond that–I applaud it.
I applaud Mr. Malhotra’s move, but the fact that it’s newsworthy tells a larger story. We need to value all our associates, and have their compensation mirror that value.
In some ways, it’s not the money as much as it’s the message. and it’s a good message.
Taking a pay cut, even a minimal one, sends a loud signal to the entire company that although the situation is serious the CEO values the welfare of the team. It also signals investors that the company is serious about turnaround and willing to make the sacrifices needed to come out the other side. Any CEO not willing to take a pay cut when the company is struggling is not a leader worth following. Container Store still holds value to consumers and could be successful if they can hold out long enough to transition to a better business model.
Executive pay has skyrocketed and a comprehensive realignment is overdue, especially given the labor strikes, job market and economic conditions. While it’s a one-time reduction that won’t go far when divided by 5000 people it’s absolutely a show of goodwill
The Container Store CEO taking a salary cut aligns with their culture, which is very people-focused (both employees and customers). The more general population of CEOs should take note. Does a temporary 10-20% (or more) cut in salary make a difference when others are being laid off? Something to consider: If merit is considered part of a leader’s salary, then it could be based on criteria beyond profit or sales. Employee retention, growth, sentiment, and more can be considered.
Some day perhaps we can get past the destructive results of shareholder value mythology. And high CEO pay is one of the very bad results of the shareholder value myth. (I highly recommend Lynn Stout’s book on the subject including why it is no how related to legal necessities.)
I applaud this step. Of course, this salary is nowhere near the tens of millions we see CEOs receive elsewhere. But fixing problems always requires first steps so it is good to see.
Good for him! The Container Store is one of the good guys….
Lately the answer to almost every “WTAF” question is “corporate greed.” The average American notices it and is getting really tired of it. People you’d never think would go in that direction. But it isn’t subtle.
Yay for the good guys.
It’s a nice gesture, perhaps. And I don’t want to minimize the importance of gestures – particularly in reenforcing the “we’re in this together” message – but there are limitations, too: for one thing it futhers the idea that the salary caused the cuts…which is almost never true; another problem is what happens in the long term: if the exec eventually receives some outsized bonus, it will negate the earlier advantage; a third problem is that it may discourage others from working there if a perception develops that they might become a scapegoat; and last, but by no means least, the move should never be a sustitute for competence…to the extent that the person truly caused the problems, the solution is termination, not a hand slap.
In a word, “Yes”! It sends a clear message to those who are still employed that management isn’t living off the fat of the land while workers are going hungry. Of course, that said, living of $832,500 a year isn’t really all that tough. Now, if we had cut his full compensation in half he would still be making a huge amount more than the average employee but it would make a statement. Those with long enough memories may recall when Lee Iacocca drew a salary of $1 a year as CEO of Chrysler.