As sweeping rounds of layoffs rock the tech, media and finance industries in 2024, some video game fans are thinking about former Nintendo CEO Satoru Iwata.
Iwata ran the Kyoto, Japan-based video game company from 2002 until his death in 2015. In 2013, Nintendo released the Wii U console as a successor to the mega-popular Wii. It was a commercial failure, pushing the company into years of losses.
To avoid layoffs, Iwata took a 50% pay cut to help pay for employee salaries, saying a fully-staffed Nintendo would have a better chance of rebounding.
"If we reduce the number of employees for better short-term financial results, employee morale will decrease, and I sincerely doubt employees who fear that they may be laid off will be able to develop software titles that could impress people around the world," Iwata reportedly said at the time.
His story resurfaced virally on social media last month, with some users praising his decision against the backdrop of layoffs at video game companies like Riot Games and Microsoft, which owns Activision Blizzard and Xbox.
Here's how the strategy worked for Nintendo, says San Francisco-based executive coach Rohan Verma — and why it's not always a perfect fix for other companies facing similar situations.
Iwata had faith in his talent
For Iwata, taking a pay cut over layoffs centered around his employees' ability to bounce back, Verma says. Slashing his own salary allowed existing talent to keep working on upcoming projects — which were intended to turn Nintendo's financial fortunes around — in a stress-free, high-morale environment.
The company released its next game console, the Switch, in 2017. Nintendo has since sold more than 139 million Switches, as of December 2023.
"Nintendo [needed] to see through the changes that necessitated launching the Nintendo Switch, which has been massively profitable for the company," says Verma. "They needed to retain that talent, and a part of that talent retention strategy is a strong compensation package."
It's a risky move. Any CEO who follows Iwata's example needs to be absolutely sure that "the company's strategy is still sound, or that the products they're offering are still right for the market," Verma says.
His decision could've been influenced by culture
There may have been a cultural aspect to Iwata's decision.
"Culturally speaking [in Japan], especially in the face of companies not doing well and feeling contrition or being apologetic, there's this notion of individuals needing to save face," Verma says. "And the way they might do that is taking a pay cut."
The concept of "hansei," a practice that emphasizes self-reflecting and meditating on mistakes to form a proper apology and set forth a prevention plan going forward, is considered common across traditional Japanese culture.
Those tenets tend to be useful for helping CEOs get back into the good graces of their employees or the general public — particularly when CEOs are more broadly seen as prioritizing profits over accountability and trustworthiness, Harvard Business School professor Sandra Sucher told CNBC Make It last year.
"We're in a crisis of trust in leadership [in the U.S. right now]," Sucher said. "Leaders of all kinds ... are failing some of the basic expectations that people have for how they should be treated."
Executive pay cuts don't always solve macro issues
If a company's financial woes are simply due to overspending, a pay cut can help. If the issues run deeper, any layoffs probably aren't solely about salary reductions.
"[Executive pay cuts] are relatively uncommon because they don't actually address some of the underlying issues that [cause] a layoff in the first place, like product strategy falling flat, the go-to-market strategy [not] landing, or pricing [being] wrong," Verma says.
Companies might perform layoffs to fix overstaffing problems, reckon with duplicate jobs from mergers or adjust their budgets for long-term inflation. Citigroup, for example, plans to cut 10% of its workforce, or 20,000 employees, over the "medium term," it announced in January.
Citigroup was the lowest-valued among the country's six biggest banks, and one of the few American banks to avoid layoffs over the last year, CNBC reported at the time of the announcement. That indicates the layoffs are more about intentionally reorganizing the company than simply cutting costs, says Verma.
Some CEOs have "locked in" contracts that prevent them from slashing their salary, Verma adds. "It may also send the wrong signals if a company wants to retain their CEO and executive staff, or if a new CEO might want to come in," he notes.
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