COVID-19 Diary: Layoffs, Executive Compensation, and Dividends

I’m writing the draft of this post on April 5, 2020, the end of the third week of quarantine in Los Angeles. COVID-19 has infected the word. Millions are sick from the virus. “Unprecedented” is the world I’ve seen most often. I’m very sad about a lot of things: people being laid off, being in another recession, and people dying.

Economically: again, the layoffs; there has been an insane amount of unemployment claims in the U.S.

I’ll talk about one company in this post. Simon Property Group. I’ve worked in the real estate industry for just over four years, so they particularly caught my eye. (Full disclosure: Simon is a competitor of my current employer.) The talk throughout calls with coworkers was Simon’s announcement that it was furloughing 30% of its workforce due to the pandemic. 3-in-10 people, effectively unemployed when business has stopped for three weeks.

Being laid off has terrified me for the last ten years, since I graduated into the bottom of the Great Recession. The ultimate feeling of unsettled, not being able to pay my bills, (including my student loans), pay rent (now a mortgage), and generally providing for myself and my family. Never mind the shame of it all, as undeserved as it may be. This all made me think, was this furlough necessary?

The Baseline Information:
From Page 45 of Simon’s 2019 Proxy Statement, Simon employed 3,500 people, with a median employee salary of $62,457. Thirty percent of the employee force = 1,050 individuals. Projections of public places being closed is for just under 3 months, or 25% of a year. Twenty-five percent of $62,457 is $15,636.75. Multiply that by 1,050 people, and you get $16,418,587.50; call it $16.5 Million.

Executive Compensation:
From Page 39 of their Proxy Statement, Simon’s top 5 executives, in 2019, made just under $21 Million. That is to say, Simon could have paid its top 5 executives $900,000/year in 2019, and had enough to cover its furloughed employees for 3 months. Of course, Simon didn’t do that.

Dividend:
Simon is a Real Estate Investment Trust (REIT), which is a legal entity that receives very favorable tax treatment, and in exchange has to pay a dividend (cash) to is shareholders. Do you know much Simon paid its stockholders in dividends (again, cash) in 2019? (I looked this up before writing the next sentence, and it’s absurd.) From Page 63 of its 2019 Annual Report, Simon paid just under $3 BILLION, with a “B”, in dividends/cash. That is to say, $828,571 per employee, and One Hundred Seventy-Five times more than the cost (savings) of their furlough.

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A friend of mine posted on her Instagram story, a mock interview with a landlord, who was thinking about evicting their tenants who had lost their job and couldn’t pay rent. One of the points raised was that the landlord’s property was an investment, and subject to risk. You’re welcome to a different opinion, but I hold this (subjective) opinion – the transfer of risk to the tenant, who did not hold the investment, was unfair. The tenant has no additional upside – they get a steady roof over their head, no potential for profit. I think this example can be translated to a company/shareholder-employee situation. Is it fair for shareholders to transfer the risk of their investment to a company’s employees? I say – NO.

So did Simon have no other choice, but to furlough 30% of its workforce? That is – I guess – a personal question. I think their financial statements pretty strongly indicate that the furlough was not necessary. Instead, management chose to shift less than 1% of their shareholders return on to over 1,000 people. That’s fucked.

(For all of my more conservative readers, if any of those 1,000 individuals claimed unemployment benefits, the company and its shareholders effectively shifted their investment risk not only to their employees, but also to taxpayers.)

–The Anxious, Amateur Economist