Socialising losses in Covid times - Disney edition

I had blogged earlier about how Marriot was living its Business Roundtable commitment to worker's welfare by furloughing workers even as shareholders were being paid out dividends and executives fat bonuses.

Now FT has a good article on how Disney is living the same set of ideals by socialising losses even as dividends and large executive bonuses are business as usual.

More than half its staff have been furloughed on unpaid leave. But guess, who's paying for them?

Across its parks in California, Florida and France, Disney staff will draw at least $400m in state benefits every month, according to FT calculations based on average weekly rates. That would exceed $1bn of direct and indirect government support for Disney if, as expected, its sites stay closed until July.

Even as the workers were being furloughed, the company was piling up record cash balances and it appeared business as usual with dividends and bonuses,

Reserves, recent fundraising efforts and its revolving credit facility give Disney about $30bn in cash, while it has some $12.5bn in debt obligations over the next two years. “That leaves them with net liquidity somewhere in the neighbourhood of $17.5bn,” says Neil Begley, a senior analyst at Moody’s. “It is a lot.”... Mr Iger has given up the remainder of his $3m base salary for 2020. But his performance-related incentives, worth more than $40m for Mr Iger last year, remain in place... Unlike some other big multinationals, Disney has yet to comment on plans for its dividend, which it has paid regularly for the best part of six decades. The 2019 payments totalled around $3bn — which covers almost six months of salaries for park employees... Even before the coronavirus crisis, Disney’s executive compensation policies had been a source of dispute with many shareholders... For the past three years, at least 40 per cent of Disney shareholders have voted against Mr Iger’s remuneration package, which was reduced on three separate occasions last year to placate investors. Those investors who raised concerns included the five biggest US pension funds... Mr Iger’s $47m pay package last year was worth 911 times that of Disney’s “median worker”.

This raises the issue of whether the US model of lay-offs and furloughs with government picking up the tab for them is more distortionary than the wage subsidies that many European governments have been offering as part of Covid 19 rescue packages.   

The US model de-links the government support for the furloughed or laid-off employee from the employer. Besides the business has no requirement to make any co-payment or contribution for the support given by the government. It leaves the business to continue with its plans without incurring the worker fixed cost. In simple terms, it externalises the costs and appropriates everything privately.

In contrast, the European model obliges the company to pay a share of the wages, and the government also has the ability to impose other conditions on the companies that receive such subsidies, including mandates that they don't pay bonuses or dividends. While the costs are externalised, it also comes with both some sharing of costs and a binding commitment to good practices.