Should You Take A Pay Cut To Save Your Job?

by Jacques Sprenger on 2009-05-2411

Are you willing to take a pay cut to save your job, or would you opt for a job layoff (and get severance)? The financial crisis brought this question to the forefront as many companies decided to cut their costs.

At first, this may seem like a strange question, but you’d be surprised by the responses you’d get if you ask it: would you leave your job during the crisis? Would you prefer to get laid off or would you take a pay cut to save your job? There are reasons why you’d opt for one situation over the other — the only answer I can give here is that it all depends. Based on your circumstances, you might decide to hang on or move on.

Should You Take A Pay Cut or Accept A Job Layoff?

Some companies have opted for shrinking paychecks instead of firing people. Hewlett-Packard and the NY Times are some of them. Smart companies will even give their employees a day off as compensation, converting the job into a French imitation of the 35 hour week. Even smarter firms are able to encourage their CEOs to come down from their perches to personally talk to affected employees (for small and medium companies obviously). It supposedly helps morale in the office when the boss says “I’m going to take a pay cut myself”, say from a million dollars a year to $800,000 (boy that 20% pay cut sure is a sacrifice!). Do all these measures really help employees feel better? And what about the company stars, the ones who bring big clients and contribute to the bottom line; how would they react to a pay cut? What if you were one of those affected?

Should you agree to lower salaries? Reducing the base salary is anathema to many people, according to BusinessWeek: “Employees know their bonus is going to go up and down, but base pay is supposed to be sacrosanct,”; thus, pay cuts tend to create an unpleasant atmosphere inside the office where sotto voce grumblings can be heard in every department. Then again, in some circles, even bonus cuts are met with fire — just ask investment bankers who hold Wall Street jobs about this. Now how should you react if this happens to your job? Would you prefer pay reduction to layoffs and hope to be spared by the pink slip guillotine?

job layoff, pay cut
Image from BioJobBlog

Another problem is losing your key players who are upset by the lower salary: “The last thing you want is for your A players — or people in key strategic positions delivering the most value — to leave because you’ve mismanaged your compensation system”, says Mark Huselid, a famous Human Resources consultant.

How To React To Changes To Your Employment Situation

As an exercise, let’s consider your options once you’re hit with a salary cut:

1. Discuss your situation with your boss.
If you are one of those stars in the company and you are hit by a generalized pay cut, you should immediately ask to talk to your boss in private. Make sure you have the facts, the numbers to support your claims. An enlightened supervisor will go up the chain of command and try to reverse the decision, because he/she knows that his/her position is contingent upon your success.

2. Threaten to quit?
Don’t try this as a bluff, because the last thing you want is for your employer to call you out. If you are ready to move on anyway, then express your dissatisfaction about your situation in as diplomatic a way as you possibly can. I wouldn’t go this route unless I had other offers on the table, of course. The worst thing you could do is jump from the frying pan into the fire by leaving a job without better options under consideration. So only try it as a last resort: mention the possibility that you will resign if there’s no room to negotiate your situation and you’re truly going to be unhappy with your new terms of compensation. Here’s my opinion as a former HR representative (some of you may disagree, and if you do, we’d love to hear your thoughts!): HR departments must know that treating everybody the same way may not be conducive to good office morale. Just as salaries are different for different positions and responsibilities, so must the pay cuts be treated according to individual merits. Now if you’re bent on quitting, you may want to check out our articles on 25 Reasons To Leave Your Job and 15 Ways To Resign.

3. Know when to complain.
If you are not one of the big movers in the company, should you complain when you are told that salaries will be cut? No, of course not. Be thankful you still have a paycheck at the end of the month, albeit a smaller one. It’s still better than collecting unemployment. Don’t even gripe privately to your office buddies; as you know very well, the grapevine will make sure that your comments reach the boss. Back stabbing is unfortunately an old custom at the work place, a habit that has been compared very often to the crabs in a basket: whenever one tries to crawl out, the others pull him back in. There is nothing wrong with discussing the situation with your boss and explaining what hardships a lower salary will cause. If you have a good relationship with him/her, it will make a difference when he/she is considering promotions (if you prove to be a loyal and hardworking employee.)

4. Look at the bright side.
Consider the long term and the overall economic situation. The company wants to keep you; that’s why they reduced your pay. It’s not punishment; it’s a way of saying that they value your contribution but that times are tough. When the economy rebounds, people like you who showed their loyalty when things were difficult should be rewarded. Bosses are like elephants: they have a long memory. So it pays to put your good face on when everybody else is complaining. It just might make you the front runner for a better position when the time comes.

So what’s your take?

Copyright © 2009 The Digerati Life. All Rights Reserved.

{ 11 comments… read them below or add one }

Cruvic May 25, 2009 at 5:47 am

In these trying times a pay cut would definitely be the answer provided the company can come to some sort of an agreement that those who take pay cuts will be the last to be eliminated from the work force if conditions deteriorated in the coming months. Having a monthly income versus no income… it’s an obvious choice if I was to make the decision.

malingerer May 25, 2009 at 8:02 am

given that I was laid of 7 months ago and have yet to find another job, well, I would take the cut in hours..

Yul May 25, 2009 at 8:10 am

Why not make our own business? Lots of people succeed in crisis.

Mikael @ Retire Rich Roadmap May 25, 2009 at 9:11 pm

I would have them fire me but I can see why the answers you’ll receive would depend on the situation you’re in.

Craig May 26, 2009 at 12:12 pm

The problem with pay cuts is you are still required to do the same work if not more for less. Mentally that can be a real drain and employees efforts may dwindle.

Jim May 26, 2009 at 2:22 pm

I have a good job and it would be pretty hard to find another job as good especially in this economy. I’d take a paycut over layoff for sure.

Kristy @ Master Your Card May 26, 2009 at 10:22 pm

Ultimately, I’d prefer to have a job and would therefore take the pay cut. However, I think if that were the case, I’d propose going to a part-time position with my boss so that I might focus more on my writing. That’s what I want to do anyway, so such a situation would seem like a golden opportunity. I don’t know if that is something the company would go for, but it’s worth a shot and would definitely allow me to follow my passions a bit more, so there’s no harm in asking. However, if the part-time bit was not feasible, I would still accept the lower salary, but I would be looking for a new job.

I think a major factor in this discussion is going to be how well you like your job. For me, my job is simply that, a job. I’m not really passionate about it – though I like the people and the work well enough. But, there are other areas I feel my talents would be better cultivated. So, economic prudence demands that I keep the job until what I want comes along, even if that means taking a pay cut.

Kelly from Almost Frugal May 27, 2009 at 1:37 am

My mother was just in this situation. She works for a professional bindery and also in her own business. Her boss did one round of layoffs, and was facing having to do a second, in which she would have lost her job. Had she gone on unemployment she would have lost her salary, but also her side income would have counted against her unemployment benefits. Instead, she’s working part time, but her employer is still paying her benefits, and the side money she earns is still in addition to her salary. Plus she gets time off- so she’s really quite pleased with the whole situation.

Obviously she’s in a special situation, but I’d probably have to go for the same sort of compromise. I think this really works best when you have a side business you can also draw on, of course!

Great post!

Jacques Sprenger May 27, 2009 at 9:04 am

It seems that most comments lean toward accepting a pay cut with the inevitable consequences of lower morale. Some of you hint very clearly at accepting while planning to look for another job. I loved Kristy’s idea of discussing the situation with her boss and negotiating a part time position. That of course is not always possible, so be careful before talking to the boss. He/she doesn’t want to hear that you are already planning to leave the company, even if it’s part time. Supervisors want total commitment, especially in a difficult economic situation. As Kristy states, it all depends if you are passionate about your work. If not, I strongly suggest you find one that does excite you. Your life will be much happier!

Bargain Babe May 27, 2009 at 3:44 pm

Well I left my job before having to face a pink slip or a pay cut – both of which my colleagues have endured since I left in January 2009. Some people don’t seem to mind waiting for the axe to fall, but I say if you have a brighter opportunity, take it! If you don’t, search one out. The stress of working in a shrinking industry is taxing.

TStrump May 27, 2009 at 11:01 pm

I think I would preferred a layoff – it would depend what kind of package I would get.
I would then use the money and free time to do something I really want to do.

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