How the CEO of Nintendo once halved his salary to stop layoffs and drive company recovery

A strong leader greatly enhances team success and fosters a sense of ownership among employees. Former Nintendo CEO Satoru Iwata’s decisive action saved Nintendo from failure, illustrating the impact of effective leadership.

Iwata led Nintendo until his passing in 2015. Despite the success of the Wii, the Wii U console, launched in 2013, failed commercially, leading Nintendo to years of financial losses, according to CNBC.

To avoid job cuts, Iwata halved his salary to support employee wages, emphasizing the importance of retaining the entire team for Nintendo’s recovery.

“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,” the former Nintendo CEO said at the time.

Early this year, his story went viral on social media, garnering praise from many users.

His decision was particularly notable considering recent layoffs at major video game companies like Riot Games and Microsoft (owner of Activision Blizzard and Xbox).

Rohan Verma, an executive coach from San Francisco, examined why Nintendo’s approach succeeded and cautioned that it may not suit every company facing similar challenges.

Verma explains that Iwata reduced his pay instead of laying off employees to support his team’s recovery.

This decision allowed Nintendo’s talented staff to focus on new projects, fostering a positive, low-stress workplace atmosphere.

Nintendo’s launch of the Switch console in 2017 has been highly successful, with over 139 million units sold 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.”

Verma cautions that emulating Iwata’s approach is risky; CEOs should ensure their company’s strategy and products are viable before taking similar actions.

Verma highlights a cultural factor in Iwata’s decision, noting that in Japan, during tough times for companies, individuals often seek to save face by taking pay cuts as a gesture of responsibility and remorse.

“Hansei” in Japanese culture involves reflecting deeply on mistakes, offering sincere apologies, and planning to avoid future errors.

According to Harvard Business School professor Sandra Sucher, these principles can assist CEOs in rebuilding trust with their employees and the public.

She highlighted a current crisis of trust in U.S. leadership, where leaders often prioritize profits over accountability and fair treatment.

Cutting executive pay might help if a company’s financial troubles stem from overspending.

However, as Verma points out, layoffs may involve deeper issues beyond salary reductions, such as ineffective product strategies, unsuccessful marketing efforts, or incorrect pricing.

Companies may lay off employees to tackle issues such as excessive staffing, redundancies following mergers, or adjusting budgets for inflation.

Citigroup, for example, announced plans in January to cut its workforce by 10%, approximately 20,000 employees, over the next few years.

As CNBC reported, Citigroup was the least valuable among the top six U.S. banks and notably avoided layoffs last year.

Verma suggests these layoffs are intended to strategically reorganize the company rather than cut costs.

He also notes that some CEOs are contractually prevented from reducing their salaries, which could complicate efforts to retain current leadership or attract new executives.

Meanwhile, several CEOs, like Zoom’s Eric Yuan, have taken similar steps, per Entrepreneur.

Yuan reduced his salary by 98% to $301,731 last year and opted out of his 2023 corporate bonus after Zoom laid off about 1,300 employees, around 15% of its workforce.

A 2023 Resume Builder report reveals that 66% of surveyed executives cut their salaries in the past six months, with 94% aiming to prevent or mitigate layoffs.

Despite these salary reductions, CEO compensation includes more than just salary, so some cuts may not have as large an impact.

For instance, as reported by Bloomberg, Yuan’s substantial ownership of over 13% of Zoom contributes significantly to his estimated $5 billion fortune.

Moreover, CEOs still earn nearly 400 times more than the average worker.

Below is a quick story that talks about the life of beloved Nintendo CEO, Satoru Iwata: