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Last week, the CEO of real estate company Redfin, Glenn Kelman, announced the company was laying off 8% of its employees in an email, saying that demand for the company’s realtor services had fallen 17% below expectations in May.
“We don’t have enough work for our agents and support staff, and fewer sales leaves us with less money for headquarters projects,” Kelman wrote in the email announcing the layoffs on June 14.
The layoffs at Redfin and another real estate company, Compass, on the same day, came as the entire industry entered a cooling period last month, with surging mortgage rates pulling potential homebuyers out of the market.
But in an unfortunate twist, the layoffs were announced on the same day Redfin shareholders approved the 2021 compensation packages for four of the company’s top executives, including bonuses.
An SEC filing reveals that Redfin CFO Chris Nielsen received $2.3 million in base pay, stock options, and bonuses that amounted to $160,000; president of real estate operations Adam Weiner brought in a total of $2.7 million, of which $122,600 were bonuses; and CTO Bridget Frey earned a total of $2.2 million, including $160,000 from 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 stipulates that the compensation packages are paid out “mostly via equity rather than cash,” that is tied to performance-based incentives. “[Executives] will realize meaningful portions of their compensation only if our company performs at a high level,” the filing read.
That the vote on executive compensation occured on the same day layoffs were announced happened “coincidentally,” Alina Ptaszynski, corporate communications manager at Redfin, told Fortune, adding that shareholders had been made aware of the payout figures months beforehand.
“The way that annual shareholder meetings work is that they're scheduled often months in advance,” Ptaszynski said. “The proxy statements that the shareholders vote on are also shared with shareholders months in advance.”
Ptaszynski said that the compensation package figures had been given to shareholders in “April or May” of this year, and that the packages are “not really tied at all to the layoffs.” She added that the meeting had been set for June 14 so that Redfin’s finance team had enough time to calculate bonuses based on the company’s performance in 2021.
Ptaszynski said that a compensation committee decided on executive compensation and bonuses in April when compensation figures were sent to shareholders for approval, and that the procedure and timeline was “typical” for publicly traded companies.
“That's the way that the process has always worked,” she added. “So there was nothing different about that process this year either.”
Layoffs and executive bonuses
Redfin isn’t the first company to announce executive bonuses while laying off employees. Large executive payouts during times of economic hardship, mass layoffs, and uncertainty over a company’s future are far from illegal or uncommon.
In 2005, Congress banned companies from paying out large retention bonuses to executives while under the process of filing for Chapter 11 bankruptcy, a practice the late Democratic senator Ted Kennedy said constituted “glaring abuses of the bankruptcy system by the executives of giant companies” in a statement accompanying the bill.
But while the ruling stopped companies from giving executives large payouts when filing for bankruptcy, it did nothing to stand in the way of bonuses being handed out during less dire times.
Companies routinely issue large payouts to executives during times of economic distress. This practice became especially popular in the early days of the pandemic, when global lockdowns and upended markets led to one of the largest waves of layoffs in U.S. history.
In March 2020, stockholders of telecommunications company AT&T approved a $32 million compensation for then CEO Randall Stephenson, a 10% rise from 2019, despite the company having laid 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 retention bonuses worth $16 million for executives, days before filing for bankruptcy and only a month after laying off 10,000 of its staff.
While a cooler real estate market is by no means an indicator that Redfin is preparing to file for bankruptcy, layoffs at the company are a signal that Redfin’s rapid growth over the past few years might be cooling too.
June 23, 2022: This headline has been updated for clarification, and the story has been updated to reflect that the compensation committee decided on executive compensation and bonuses in April.
This story was originally featured on Fortune.com