Amidst the recent layoffs in the United States, some chief executive officers (CEOs) of laid-off firms took pay cuts. Allegedly, the pay cuts were made to address employee unrest and achieve better organizational performance, specifically financial outcomes. The phenomenon begs the question of whether CEO pay cuts indeed help enhance layoffs’ performance consequences. However, existing academic literature lacks understanding regarding the effectiveness of CEO pay cuts in improving organizational performance (i.e., financial outcomes) in relation to layoffs. Focusing on employees’ judgment of layoff unfairness, I hypothesize that the effect of layoffs on organizational performance is relatively more positive when CEO pay cuts are implemented, as well as that the conditional effect of layoffs on organizational performance is negative when the pay cuts are not implemented and non-negative (i.e., null or positive) when they are implemented. The suggested hypotheses were tested using a sample of publicly traded companies in the United States observed from 2001 to 2020. Overall, the findings imply that reducing CEO pay leads to more positive performance outcomes during layoffs by shaping their relational pattern in the way that was proposed.
