Redfin shareholders approved executive bonuses and huge compensation packages on the same day the company announced major layoffs. How is that legal?
Last week, real estate company Redfin CEO Glenn Kelman announced in an email that the company was laying off 8% of its employees and said demand for the company's brokerage services fell 17% in May, below expectations .
"We don't have enough work for our agents and support staff, and less sales leaves us less money for projects at headquarters," Kelman wrote in the email announcing the June 14 layoffs.
The layoffs at Redfin and another real estate company, Compass, came on the same day as the entire industry entered a slowdown last month, with rising mortgage rates forcing potential homebuyers out of the market.
But in an unfortunate twist, the layoffs were announced on the same day that Redfin shareholders approved 2021 compensation packages, including bonuses, for four of the company's top executives.
An SEC filing shows that Redfin CFO Chris Nielsen received $2.3 million in base compensation, stock options and $160,000 in bonuses; Adam Weiner, President of Real Estate Operations, raised a total of $2.7 million, including $122,600 in bonuses; and CTO Bridget Frey made $2.2 million in total, including $160,000 in bonuses. Former Chief People Officer Ee Lyn Khoo, who left the company in January 2022, brought in $3.2 million in compensation, with $141,200 coming from bonuses.
The SEC filing provides that the compensation packages will be paid "mostly through equity rather than cash," which is tied to performance-based incentives. "[Executives] will only realize significant portions of their compensation if our company performs at a high level," the filing reads.
The fact that the vote on executive pay took place on the same day the layoffs were announced happened "by coincidence," Alina Ptaszynski, corporate communications manager at Redfin, told Fortune, adding that shareholders had been drawn to the payout numbers months earlier had been made.
"The way annual shareholder meetings work is that they're often scheduled months in advance," Ptaszynski said. "The proxy statements that shareholders will vote on will also be communicated to shareholders months in advance."
Ptaszynski said the pay package figures were disclosed to shareholders in "April or May" this year and that the packages were "not linked to the layoffs at all." She added that the meeting was rescheduled for June 14 to give Redfin's finance team ample time to calculate bonuses based on company performance in 2021.
Ptaszynski said that a compensation committee had been deliberating on executive pay and bonuses since April and that the process and schedule was "typical" for publicly traded companies.
"That's how the process has always worked," she added. "So nothing was different about this process this year either."
Layoffs and bonuses for executives
Redfin isn't the first company to announce executive bonuses while laying off employees. Heavy payouts to executives during times of economic hardship, mass layoffs, and uncertainty about a company's future are anything but illegal or unusual.
In 2005, Congress banned corporations from paying large retention bonuses to executives while in Chapter 11 bankruptcy proceedings, a practice that the late Democratic Senator Ted Kennedy called "blatant abuse of the bankruptcy system by the executives of giant corporations," in a statement, which is attached to the invoice.
But while the ruling prevented companies from giving executives large payouts when they file for bankruptcy, it didn't stand in the way of handing out bonuses in less dire times.
Companies routinely pay large payouts to executives during times of economic hardship. The practice became particularly popular in the early days of the pandemic, when global lockdowns and turbulent markets led to one of the largest layoffs in US history.
In March 2020, telecommunications company AT&T shareholders approved $32 million in compensation for then-CEO Randall Stephenson, a 10% increase from 2019, despite the company laying off 20,000 employees in 2019 and around 3,300 in the first quarter of 2020. And in May 2020, car rental company Hertz approved $16 million in retention awards for executives, days before filing for bankruptcy and just a month after laying off 10,000 of its employees.
While a cooler real estate market is by no means an indicator that Redfin is preparing for a bankruptcy filing, layoffs at the company are a signal that Redfin's rapid growth over the past few years could also be cooling.
June 23, 2022: This headline has been updated for clarity
This story was originally published on Fortune.com
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