Zoom founder and CEO Eric Yuan (Photo by Kena Betancur/Getty Images)
Zoom, the online video platform that rose to prominence during the pandemic, is experiencing a slowdown from its previous glory days. Zoom announced on Tuesday that it would downsize around 1,300 employees, representing about 15% of its staff, according to a company blog post.
CEO Eric Yuan said in the memo to employees, "As the CEO and founder of Zoom, I am accountable for these mistakes and the actions we take today and I want to show accountability not just in words but in my own actions," Yuan wrote. "To that end, I am reducing my salary for the coming fiscal year by 98% and foregoing my FY23 corporate bonus." He added, “Members of my executive leadership team will reduce their base salaries by 20% for the coming fiscal year while also forfeiting their FY23 corporate bonuses.”
The former video highflyer is yet another tech company that has added to the ever-increasing number of layoff announcements. Similar to Meta, Amazon, Google, Microsoft and other tech giants, Zoom aggressively hired, believing the good times will never end. Yuan wrote, “Our trajectory was forever changed during the pandemic when the world faced one of its toughest challenges, and I am proud of the way we mobilized as a company to keep people connected. To make this possible, we needed to staff up rapidly to support the quick rise of users on our platform and their evolving needs. Within 24 months, Zoom grew 3x in size to manage this demand while enabling continued innovation.”
Now faced with record-high inflation, interest rate hikes and a challenging economy, the video platform, like many other pandemic winners, is cutting costs and reigning in expenses to adapt to the new austere environment.
The Trend Of CEOs Taking Pay Cuts
Shareholders, activist hedge funds and corporate boards have taken action against CEOs who misjudged the changing economic landscape by hiring too many people too quickly, incurring high costs. CEOs, including Sundar Pichai (Alphabet), Tim Cook (Apple), Jamie Dimon (JPMorgan), David Solomon (Goldman Sachs), James Gorman (Morgan Stanley) and Pat Gelsinger (Intel), are all taking pay cuts. Despite the public relations show, no one needs to feel sorry for the top executives, as the most significant part of their compensation packages comes from stock rewards.
Are CEOs Really Taking A Hit?
Bloomberg reported that when tech companies announced layoffs, their stock prices rose 5.6% in the month following the job cuts. Alphabet, Google’s parent company, laid off 12,000 people last month, and its stock price jumped by 15% this year. Microsoft let go of around 10,000 employees, and its share price went up by 6%. Amazon, after layoff announcements, saw the stock price soar by 19%. Meta saw its share price skyrocket by about 50% when CEO Mark Zuckerberg laid off workers, initiated a stock buyback program, targeted managers for the next round of downsizing and shied away from talking about the metaverse, calling for a year of “year of efficiency.”
It's All A Game
The salary and bonus cuts look more performative than making a significant financial impact on the multibillion-dollar company. There appears to be a sneaky strategy behind the compensation cuts. If you look back at the tech companies that instituted layoffs, stock buybacks and calling for CEOs to cut their pay, the share price of their company stock popped after the announcements. This is emblematic of the new, emerging era of companies pulling away from catering almost exclusively to their top talent, such as software engineers, and pivoting toward appeasing investors and shareholders by showing them they are becoming more fiscally prudent and frugal.
The trend ends up, at least temporarily, helping both the executive team and workers who own stock or options. For example, shares of Zoom rocketed 10% higher following the news of the job cuts. The bulk of the total compensation received by tech managers and employees is derived from stock. An announcement of a layoff will result in a rise in the share price, resulting in almost everyone benefitting, except for the people who were axed. Yuan and his management team's salary and cuts were more than likely compensated for by the appreciation in Zoom’s share price.
There’s No Need For A GoFundMe Campaign
Yuan has a net worth of $4.1 billion, according to Forbes. A prior Securities and Exchange Commission regulatory filing in 2019 shows that he holds approximately 19.1% of Zoom’s outstanding capital stock. In a 2021 filing, Yuan transferred a large portion of his shares to a private trust, so it may be hard to capture the entirety of his holding in the video platform. A 10% bump in share price would make his salary cuts seem insignificant. However, there is no guarantee that the spike in value will last. Nevertheless, according to Benzinga, Yuan is a frequent trader in options on the shares of the video platform he helped found.
