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?
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?
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