In the September 20, 2016 Ask The Headhunter Newsletter, a reader doesn’t see a pay cut as a good deal.
Yesterday my company, which is experiencing cash flow difficulties, asked me to take a 30% salary cut to keep doing the same job and still at full time. Do you have any tips on how to respond? I feel like I’ve been bushwhacked.
The obvious answer is to tell them to shove it and quit.
But if that were your first choice, you wouldn’t be asking for tips. There are several ways you could respond, so let’s consider some of the issues before I offer some suggestions you could tweak to suit your needs.
Let me ask a key question:
Did they give you any indication or evidence that they expect to return your salary to normal again? When?
If they’ve communicated nothing about that, it’s a bad sign. If they’ve made promises, ask for it in writing. How they respond will tell you all you need to know about the company’s viability. Good management is honest with employees and makes and keeps commitments. A company that leaves you in the dark about what’s really happening is in more trouble than it seems. Don’t ignore signals about this.
You need to decide how much you need that cash flow yourself. That will dictate what you should do next: wait it out or move on immediately?
Is there anything you can say or do that would bring your salary back up?
In other words, if you decline the cut, would they keep you on at your regular salary? I doubt it. So the choice is, do you accept the new terms while you look for a better job (without disclosing that’s what you’re doing), or do you quit and focus all your time on a new job?
Only you can answer that.
Negotiate a pay cut
This might work if your employer is likely to recover financially: Ask if they’d leave your salary at 100% on the books, pay you 30% less, and issue a promissory note for the balance. That is, an IOU. Then you might have standing to collect when they go bankrupt and a judge has to decide whose debts get paid first by the court.
Or, play tit for tat: Take the pay cut if they’ll take a work cut. Offer to work 30% fewer hours. Always be aware that opening a negotiation can result in the other guy withdrawing the deal entirely. That is, they might just tell you to leave now. But you could just leave now, too.
Fall back on this
Now I’ll give you my second best advice. Talk with a good employment attorney before you answer about the 30% cut. I know an attorney will cost you a few bucks, but consider how much that pay cut will cost you over the next one or two months. An hour with an attorney will probably seem like a good investment if your goal is to work out terms.
If you’re pretty sure the pay cut will turn into a layoff, start preparing now. Here are a few other issues to consider, from my PDF book, Parting Company: How to leave your job:
Should you volunteer to get laid off?
You might be able to get a severance package that costs the company even less than keeping you on at a 30% pay cut — if you volunteer to leave. (See pp. 26-27.)
Should you tell your boss you’re leaving?
Are you going to start a job search? Your boss probably wouldn’t be surprised — but I advise you not to disclose what you’re doing. If you’re going to rely on whatever meager salary they’re going to keep paying you, don’t risk it by appearing disloyal because you’re looking for a new job. (See pp. 38-39.)
If you’re ready to quit, see How should I quit this job? If you’re not going to read the book, at least read the article Parting Company: How to leave your job.
Stand up to downsizing
Are you pretty certain the company is going to fire you soon? From the book:
“Be smart. If you’re caught in a downsizing, don’t let yourself be pulled under by the current of panic. Everyone grabs the same life preservers: the job postings, the resumes, the cover letters and the random interviews. By that point, the channels of the employment system are clogged with so much competition that surviving the trip is debilitating, if not impossible.” (See pp. 23-25.)
In other words, don’t be the last one out the door pursuing the same jobs as your laid off co-workers!
Prepare and plan for the worst. When employers ask their employees for money — make no mistake, that’s exactly what this is — it’s a bad sign.
The only thing that would make me feel better is if your employer puts some skin in the game, too, in one of the ways I suggest above. But here’s my best advice: Immediately start a job search and get ready to move on — but be careful. (See How your old boss can cost you a new job.)
I wish you the best with this, but I doubt it’s going to work out well.
Did you ever take a pay cut to keep your job? How did it turn out? What would you advise this reader to do?
If one is being overcompensated relative to market rates for the position (ie: the employer is overwhelmed with resumes), then a pay cut is perfectly reasonable.
However, if one is at the average or even beneath average compensation, the only rational thing to do here is accept the cash pay cut, but ask for the balance to be paid to you as shares of the company.
If the company truly is in trouble, this costs them nothing — the shares will eventually be worthless, and the boss won’t have a job either.
If the company isn’t in trouble, then there’s upside from the shares. And some ‘loyalty’ to the organization that may not have already existed.
But seriously, firms with weak financials shouldn’t expect their employees to work at a discount. Basically an employer, by asking their employees to take a pay cut, is admitting that they’re a riskier employer to work for. Employees should be demanding higher pay on account of the risk that they’ll be laid off. Swapping some pay for equity legitimately aligns the interests of the worker as they both attempt to achieve success.
Mark: “Swapping some pay for equity legitimately aligns the interests of the worker as they both attempt to achieve success.”
I think it’s hard to argue that a company in such financial straits that it can’t meet payroll is worth investing in. If you wouldn’t buy a company’s stock, why would you accept it as part of your pay?
The company would have to demonstrate to its employees exactly what it must demonstrate to its investors: upside. There is no indication this employer even tried to do that.
Taking stock in lieu should give you, as a shareholder, a say in how the business is run as well as insight into how the company will be brought back to profitability.
Yes, if you are a big shareholder. If not, tough luck.
Is the company really in trouble? Does the company share sufficient information with employees? The employee should make sure the information from the top is true, and not only an euphemism for “the CEO and shareholders want more, you get less”.
Given that it is true, what is the company’s plan for getting back on track? If they have a plan, getting shares may be a good idea, if not, such shares will be worthless anyway. (A previous employer of mine had a share program I did not enter, because I figured out the company strategy was flawed. The company is now just a ghost of its former self).
A reasonable employer will present a plan for the way forward, and how to share the fruits when the trouble is over. If they do not, prepare to jump before you get pushed.
As a corollary; the company had four offices, a flawed strategy and incompetent management. When a new member of the board came on, via one of the investors, he instantly recognised the issues, and started a process, which ended with the ousting of both CEO and chairman, cutting office locations from four to two towns and a downsizing. And, making himself chairman.
As part of that process, I was one of the “lucky” ones who was offered to keep the job, but relocating 1500 kilometers from city A to city B. I declined and found a new job, officially for family reasons, but also because I did not believe there would be any job in the long run. The interim CEO (puppet of the new chairman) said he was disappointed that I left.
Two months after I left, the company announced that they would downsize even more…and relocate back from B to A. It was just a sneaky way of getting rid of people, and circumvent employment law. Who are right to be disappointed now?
Bottom line: Unless they show a strategy to work together to get back on track, the salary reduction is just the canary in the coal mine.
Seems like an expensive and disruptive way to get rid of people. Did the company actually physically relocate twice in two months?
They had offices in both city A and B, so they did only have to move a few people (while most already had been fired) from A to B, and then close in A. Then, they closed in B and fired most of the people, whereafter the very few remaining were transferred back to A – to new offices in the most expensive business district there, because the chairman used those offices…
Along the lines of Karsten’s comment, I think the major issue to first address is why the company is in trouble. Is the company in an industry that experiences feast-or-famine cycles and this is just a really bad trough? Was there a one time event that really shocked the company finances? Or has there been a long slide with either nothing done by management until now or a bunch of decisions that did not reverse the slide?
The reason (and how management presents that reason) should help you decide if you’re just in some really rough seas or if the company is taking on water quickly and going down.
I’d also look at what else is being done. Is it just pay cuts? Did the CEO give up his or her company car/jet? Did the CEO/owner/senior management take pay cuts, too, and were they the same or even larger? Were dividends cut? Does everyone traveling now have to fly coach and only rent compact cars instead of full size? Is this sharing the pain so you all make it together or something else? Did they trim things down with layoffs first? (No one likes layoffs, but do you really want to take a 30% pay cut so they can keep the CEO’s incompetent nephew on the payroll?)
Whatever the reason and what’s been done, however, the cash flow explanation would really give me pause. By the time a company runs into cash flow problems, things are usually really bad. If they’re asking for 30% cuts just to stay afloat, that means there’s hardly any actual cash in the bank.
Personally, I would get out of there as soon as possible. The fact that they won’t cut your hours 30% means, to me at least, that work isn’t slow. It means they’re in deep trouble.
Chris: Good points. Is management sharing the pain? And, is management sharing the upside of getting through the downturn? (Is it even a downturn?) We’ve seen companies in this situation “sell shares” to the employees, making it an employee-owned company. If management needs a bail-out, there it is. But I’ll say it again: You don’t sell shares without demonstrating how they’re going to pay off. In other words, what is management doing to turn the company around?
What troubles me about this situation is that there was apparently just one thing communicated: Take a cut. Of course, there may be other things going on we don’t know about, but that’s what makes possible the kind of broad discussion we’re having here!
My former employer recently had a series of pay cuts to higher ups or executive management. Some of them cut down to four days a week. Many of us were very low paid and I was probably the lowest. I left because I could not get them to pay me a proper living wage salary (making far under $30,000 year). This told me I was not valued and there was limited ability to move into a better paid job there. Upper echelon were mad at cuts but those of us struggling at the bottom cheered.
Patsy: I’ve never been able to understand how a company in trouble cuts pay at the level of “boots on the ground” — the people doing the work that gets the product out the door to ensure revenue flow — while not making cuts at top levels. 30% off a $1M salary leaves a reasonable $700k to survive on. 30% off a $50K salary results in near poverty-level living. $300K of cuts from top management can fund an awful lot of boots on the ground generating revenue to save the business.
Which tells me top management is stupid, greedy, or has another agenda.
It always beats me how Big Corps inmy industry (oil) can let thousands go to save money, while the top brass keeps their compensation, even increases it. I think it has something to do with power and comraderie.
This article title from “The Washington Post” says it all:
Wells Fargo fired 5,300 workers for improper sales push. The executive in charge is retiring with $125 million.
I am still trying to figure out how 5300 front line employees could collectively commit maleficence without anyone noticing. Say what, sound like the little guy is getting bent over again.
We can only wonder whether the Congressional hearing today is a dumbshow and grandstanding, or whether they’ll take action beyond flapping their lips. Richard, it’s virtually impossible to believe that the chain of command didn’t know exactly what was going on at WFB. When you reward people for certain behaviors, those are the behaviors people engage in. When a shocking spike in new accounts appeared on the CEO’s dashboard, he didn’t ask why?
I agree with you and Nick.
What irks me is that management most likely never reviewed their sales goals and product lineup so that they were fair to employees and profitable to the company.
My guess is that a somewhat hard line approach was taken with employees (Sell X or you are fired) and/or compensation was too tempting (if you sell X product, you’ll get a really big payout).
I haven’t watched all the proceedings, but I think these points are being missed.
So it is no surprise something like this happened. And no one is holding the execs feet to the fire over it – the exec who ran this program “retired” and still got millions.
Gregory: Wells smarmy CEO “answered” questions in front of a Senate committee today. He tried to be cute by not really answering the questions asked and ended up getting a new one ripped by a couple Senators. Public shaming can be good for the soul . . . assuming he has one :(
I believe the CEO was quoted as saying (under oath): “I’m shocked, shocked to find that gambling is going on in here!…I mean there was fraud going on…”
It always kills me how these masters of the universe invariably play dumb when something goes wrong, while throwing their subordinates under the bus.
“…top management is stupid, greedy, or has another agenda.”
There are even companies that purposely layoff front line employees in the 4th quarter to boost company numbers. Then the execs collect holiday bonuses. As the 1st quarter rolls around they slowly hire new employees for the same jobs the layoffs were for – at entry level wages.
Illegal? Most ex employees have “moved on” while the rest don’t have the backbone to sue anyway so this fire-hire cycle continues.
Consider carefully about quitting verses getting laid off.
Unemployment and other benefits are only granted if you are let go by your employer due to no fault of your own.
Gregory: “Unemployment and other benefits are only granted if you are let go by your employer due to no fault of your own.”
That’s only true in principle. You can quit your job and collect unemployment benefits if the employer does not contest your filing for benefits. There are other reasons for quitting vs. getting fired (assuming you have the choice).
Unemployment regulations vary by state…and I’ve gotten the impression that they vary pretty widely. In any case, the OP definitely needs to consult an attorney. IANAL but I would argue that an employer constructively dismisses an employee by whacking his/her compensation by 30%, while requiring the same hours of attendance and/or productivity.
That’s not true in Pennsylvania, Nick. You must be terminated — period. Having said that, it’s possible that the Harrisburg bureaucrats will make an exception if you can prove that your life is in jeopardy. It’s unlikely: the burden of proof is on you, but it’s my understanding that it is possible.
OP could try to structure reduced hours as a furlough, because in some states unemployment can be collected during furloughs. Problem is, as claims are weekly, would mean not working for that week.
Actually, refusing to take a 30% pay cut will likely still allow you to collect unemployment. I think I once read that if a pay cut is more than 10%, you can collect unemployment benefits if you refuse to accept the pay cut and thus lose your job.
HOWEVER, if you accept the pay cut, and THEN quit, you will probably not be allowed to collect unemployment.
In Canada a 30% cut to your pay would be considered a constructive dismissal if the employee refused to accept it, and would likely result in severance and employment benefits. I would take a severance package and run. It is always better to get out early.
This is a very important point. The letter writer can choose to take the pay reduction and seriously look for a new job or quit and have no money coming in at all. How you choose depends on your financial situation.
The letter writer also needs to consider her health insurance. If she receives health insurance from her current company the company subsidizes a portion of her health insurance premium. I she quits she will have no money coming in and she will have to fund 100% of her health insurance premiums.
Sue: Great point. In my last round of unemployment I took COBRA. It cost me ~$19k per year. I took a [temporary] substandard job just for the insurance benefit.
A lot of people in the US just work for insurance benefits.
Most of what follows has already been said. It should be in the form of a flow chart, but these are textual comments. In any event, just to be sure:
* Do you like working for this company? Is your manager a good person to work for? Are you proud to be associated with its products and services? If so, continue to the next bullet. If not, start your job search.
* Can you live on your reduced salary? If so, continue to the next bullet. If not, start your job search.
* You shouldn’t have to verify that the company is in trouble. The company’s leaders should have already presented the evidence, in clear, compelling terms. If so, continue to the next bullet. If not, start your job search.
* The company’s board and top execs should have already “awarded” themselves deep cuts in their compensation. If they have, continue to the next bullet. If not, start your job search.
* Part of the ask should have been (in written communication) what the company will do for its employees once it’s past the crisis. If so, continue. If not, start hunting.
* Is the recovery plan credible, and focused on revenue rather than continued cost-cutting? If so …
* Start your job search anyway. As a general rule, more recovery plans fail than succeed.
Bob: I love your last bullet. The rest is a very good flow chart.
Very nicely stated! I can picture the flow chart in my head.
I worked at a software startup that eventually survived but went through periods of financial stress. I took 20% pay cuts twice and was pleased that the company eventually tried to pay me back for the loss. Each period lasted about 9 months and they were about 5 years apart. This was a time of responsible management. Later the company was bought by a larger European engineering company and they eventually asked me to take a 50% pay cut and train 2 new guys (half my age) to do my engineering product management job. I did not accept this and they let me go. It was an ugly and bitter process. I agree with Gregory’s comment to not voluntarily quit since it would preclude unemployment claims.
If a tough time, etc. and the company will likely persist, why not ask for a piece of the action? Ask for a slice of the company for the lost salary.
Michael: I’ll say it again. If you wouldn’t buy shares in the company with your cash, think twice before accepting shares in lieu of compensation. (This calculation forces a person to judge the value of the shares first.) Of course, if there’s no other choice, take the lottery ticket you’re offered :-)
Perhaps if the OP takes the shares and they later become worthless, he/she can take a capital loss. (That was the upside of my first venture into the stock market…)
A few years ago, my company decided it needed to look at its cost-base – and the biggest cost is its employees. This was just after the 2008 crash and nobody knew where the electronics industry, or the world, was heading.
They told us what was going on, and that there would be no pay-rises or promotions for the next year. The annual bonus would be paid because they’d already committed to that.
In lieu of pay-rises, they gave us an increased share award for the year. Most people were happy enough with that.
As it turned out, the electronics sector didn’t crash, business grew very nicely and the share-price kept going up. We all did very well out of that lean year.
About twenty years ago, my employer ran into financial issues. They had one huge customer that was about 30% of revenue. That customer is still a big name familiar to just about anybody in the US. The customer had a set back with one of their products, and stopped ordering parts from us.
The owners gathered us together. The company could survive indefinitely as long as it didn’t lose money. Effective immediately, employees above a certain pay threshold would be given a 10% cut. If the cut took you below that “minimum livable wage,”, then you lost less.
At the end of the year through acquiring other customers and some cost-cutting moves, the company was actually going to make a profit for the year. So they took the profit and distributed it back based on the cuts.
I ended up having about a 1% pay cut for the year after the “bonus” was distributed. Next year? Salaries back to normal, plus normal pay raises.
Depends on the company. I’d consider this more indicative of the moral fiber of those owners than a testament to American business in general. :) I’ve since moved on, but the company is still in business and has continued to grow.
Ernie: Thanks for sharing your story. There are good employers out there who realize the company isn’t its products; the company is its people.
It’s worth considering two of the main definitions of “company” (from the Oxford Dictionary online):
“A commercial business.”
“A number of individuals gathered together.”
In your story, the people in the company saved the business together.
My story is similar to Ernie’s. During the downturn in 2008-2009, my employer came to the staff and said he had a choice:
* Let two people go, or
* Everyone take a 10% pay cut, with senior management taking a far steeper one.
And we all had to vote.
To a person, we all took the pay cut.
As soon as the company was able to, we were brought back up to our original salary level and a small bonus was paid out. I don’t think my CEO took home a salary for several years, frankly.
I agree that some companies play a little fast and loose with this kinda thing. But the extra ordinary circumstances of that lovely time and the good will that my company had built with its employees to date made it possible for all of us to take the hit, work until things got better, and now we are growing and sharing in the financial rewards accordingly.
I love it when a plan comes together.
At a large consulting firm, going into the dot-bomb recession, I was told that despite getting the top performance rating possible (for 5 consecutive years), there would be no raise. They were laying off people, and my reward was keeping my job. The following year I was laid off anyway, along with many of the best performers I worked with–they mistakenly sent me an email with the full list of names.
After a bit of time off to lick my wounds and spend time with my wife and baby (fully covered by severance), I reached out to a connection I had and was immediately hired by a competing firm, for the same salary. They had been through multiple rounds of layoffs as well, but for my area of expertise they had started hiring again. 2 months after I started, they announced there would be across-the-board pay cuts (~5-10%), as a way of laying off less people until things turned around.
I fought it, successfully. I had a written offer letter in my hand stating what my first year salary would be. I brought this up to the powers that be, they agreed that they should live up to their agreement, and I kept my starting salary. I would guess very few escaped the cut.
I am with the “start looking” crowd. It won’t get better and will get worse.
I worked in an overhead role for a large defense contractor that muddled along while the CEO was terminally ill at the same time the defense budgets were cut. When CEO died, a new one appointed; business had shrunk so they decided to reorganize the structure. They fired the old EVP but took a year to bring a new one-meanwhile, more muddling along. When the reorg specifics were finally announced, most of my unit was eliminated and one job went back to headquarters on the other coast. The EVP told me and the others not eliminated that we were safe. My position was to be modified, new boss, etc.
At the last minute, my job was eliminated, ostensibly because the position was cut. This was a ruse to avoid legal complications with another employee seeking the same position. Exactly six months later when it was legally safe to do so, they advertised a lower level job with most of my old duties at headquarters. I heard from the grapevine that those left behind were breaking under the workload.
Most of my thoughts are already covered but I thought I would put in my own story. My brother, a highly skilled programmer at the time, called me and mentioned that the company he was working for wanted everyone to basically work for free for two months. It was a startup. I suggested that since the founders were willing to work for free then they should be willing to part with some equity to keep it afloat. Long story short, the company failed but five years later, the equity he received for the free time (and his original options) turned into a $35K paycheck since the PATENTS from the company were worth something.
Now, this is the exception not the rule. Most losers are complete losers and a silver lining is rare.
My thought is, smile and say “isn’t that special” to their paycut and then start looking immediately. Furthermore, take any PTO you have banked and use it to enhance your job search if needed.
When the company is a consulting company; be in the first or last to leave. The first get the best new jobs, usually from competitors eager to harvest customers.
But when a consulting company dies, it takes down the non-compete agreements. The last to leave get a choice of most loyal customers. That put me in business once.
The crowd in the middle all end up chasing the same positions and leave the negotiating advantage to those employers.
MacPatrick: That’s an interesting take about being last to leave to enjoy the end of the NCA.
Barring acts of God/circumstances outside the control of management, Bob Lewis’ point about most recovery plans failing should be taken to heart.
If one exists it can be stellar, logical, motivating etc, but unless there’s a completely new management team taking over, you must remember, the plan & its execution is being managed by the same yahoos that created the mess in the 1st place.
Just a word to the wise in case the company is under bankruptcy:
Just about all bankruptcy filings and documents are public. You can get them here: http://www.pacer.gov.
If your company is asking for cuts because it’s in bankruptcy, check out what their filings are. Financial statements are required by debtors in possession. This can often tell you a lot more than what management may feel you need to know.
Chris: Thanks for posting the pacer.gov link. I love source documents :-). That’s a great tool.
Start a aggressive job search, NOW.
Consult with a lawyer that has knowledge of employment law. I know, at least locally, many lawyers will have an initial consult for free/very low cost. You can find out how kosher this pay cut is and how to proceed and possibly keep unemployment.
Finally, keep/get everything in writing.
Start looking for another job immediately, if not sooner! :) All kidding aside, this does not bode well. I really like Nick’s advice to talk with the company to find out more (is the a temporary cash flow problem, or is it indicative of bigger problems?) The fact that they can’t pay you but still want you to work full time is a huge red flag, but you won’t know unless you ask.
If they treat this information as top secret and refuse to share, then start looking for another job.
I second Nick’s and Dave’s comments re consult an attorney who practices employment law. Like Dave, in my area, many lawyer will give you the first consult for free or for a very low fee. I know that lawyers are expensive, but given the differences in state law re collecting unemployment as well as whether what your employer is doing (requiring you to do the same work for significantly less pay) is legal and what you can do about it IF you want to stay. If nothing else, you’ll learn where you stand legally and that, too, many help you decide what your next steps will be.
One of my colleagues was working a second part-time job, but they were always messing with her hours (she started out full time, her hours kept getting cut and changed) and she said that they were always whining about money (why they couldn’t give her more hours, why they couldn’t give her more money, etc.). When a full time colleague of hers left, she applied for the vacant job and got it. The colleague had left and was two weeks into her new job when she called her old boss, said she didn’t like the new job, that the people were mean, and could she come back. My co-worker had already accepted the offer, but hadn’t started working full time yet (she was serving out her notice where we work) when her boss rescinded the offer, telling her that her former colleague wanted to come back and he was giving her her old job (C’s job now) back. She was so fed up and so disgusted with the way they treated her that she quit. And sometimes, that is the only option when you’re badly treated.
As a group manager at a firm 10 years ago, we were asked by the Group President to reduce headcount by 10% and for us take 10% paycuts due to a combination of a bad sales downturn and poor performance by the parent. All the other Managers agreed, and I refused. As a Sales professional, my entire team was compensated 50% salary and 50% performance, and was already down 20% on compensation.
I told the group managers – we have already taken our pay cut.
Two of the Managers told me I earned great respect from them that day.
In my humble opinion, when they approach you for pay cuts, 99% of the time it is time to move on. Tactical strategies to keep your cash flow, live through a cycle, or trade hours for work should be considered short term hedges while you find new employment that pays you for what you do.
Equity is for rich people – not for working people. There are some many ways to dilute equity positions of the little folks it will make your head spin.
VP Sales: While I was running a sales operation many years ago, I watched another sales manager ask the president of the company for more pay. The president said, “Sure! Just sell more!”
That was a savvy move, VP, because execs in many companies view sales people as a siphon of cash. “They get paid too much!” Well, who designed that commission plan? When business is up, sales people make more, ostensibly because they’re selling more. (Counter-example: One of my reps got the biggest commission of her career when a half-million dollar sale landed in her lap. She took the commission and quit. Good move.) When business is down, sales comp follows it.
Kinda makes you realize something: Is sales the only fiscally honest job in a company? ;-)
Similar to VP Sales I worked for a # of year with a company in distress where downsizing became a habitually used necessity. My Director was told to cut 10% (no pay cuts though).
Likewise she refused, and cut the equivalent cost in other expenses in the budget.
She was told by her boss & Director peers that she’d cause resentment with her peers for not cutting staff like they did. She said more or less, I don’t give a hoot what they think. The objective was to reduce cost and I found another way.
to the original point, if the 30% cut connected to a company going down for the count, you need to think about pulling the rip cord and bailing out.
But it takes time to due due diligence in landing the kind of job you want with a good employer. So another thing to consider negotiating per Nick’s suggestion is a “stick around bonus”
For example. Back in my day I had to close down a unit I built up. The comapny wasn’t going out of business, but my Software development facility was. It was to be closed down. (painful). This was not a secret, I let people know as soon as I knew.
But be it a unit or business, closures, aren’t usually abrupt. Work had to be taken to a point where it could be handed off to another unit, or properly archived (it was Intellectual Property) etc. So I still needed people for 2 or 3 months. And of course they needed to job hunt.
So we worked out what I called the stick around bonus. Their regular pay (and benefits) plus a lump sum specifically linked to sticking around and finalizing the work that needed to be done. This was not severance pay. It was to recognize that they were taking some risk in delaying the move to another job.
I also recognized they needed to move on & supported their need to interview, references and such. And in parallel I got on the phone and called around trying to line up leads for them.
It has been interesting reading all of these comments from the employee’s point of view, because I have actually gone through this same situation myself, but from the other side – I was the employer that cut all the employees’ pay.
After the Sept 2008 financial crash, the software company of which I was CEO managed to keep rolling along OK for about 6-8 months before the inevitable finally set in and our sales and profits started to collapse. By August our financials had deteriorated to the point where we had broken some debt covenants. To avoid going into official default, we (meaning I) had to take drastic action. By far the biggest and most accessible category of expenses was employee salaries, so that’s where the cuts were going to have to come from, and fast.
I called an all-hands meeting, explained the external economic situation and how it was affecting us specifically, and announced that in order to avoid default we were going to do some serious belt-tightening. EVERYBODY in the company would be taking a pay cut, effective immediately (fortunately I had earlier given everybody in the company stock options, so I could remind them that in some small way this was for “their own good”). I told them there would be no layoffs. Knowing that the lower paid could least afford the cut, I announced that MY pay cut would be 50%, the VPs would receive a 33% cut, the next level of management a 20% pay cut, and so on down the line, to pay cuts of 5% and ½% for the lowest paid employees. (The latter of which is pretty nominal, but I wanted to present this as “EVERYBODY doing their part”.). The pay cut would last until we (or the economy) had turned things around and we were no longer out of danger.
Anyway the biggest group of employees received a ½% pay cut, the next biggest group 5%. Fortunately nobody quit, or threatened to quit. But a few months later I did hear some people griping about their ½% cut, which just proves that no pay cut is easy to (either from the employee or employer POV).
Anyway Nick, you (and most of the others here) are right in your response — the employee always has the right to decide how he wants to respond, and has no obligation to stick around if he doesn’t like or can’t renegotiate the new deal (and that’s an everyday right, not just if the deal has changed). However as the employer I was not interested in negotiating an exception to my plan for any individual employee, so my challenge during our crisis was to present the pay cut 1) as non-negotiable, and 2) in a way that would be least likely to make our employees decide they wouldn’t want to stick around. Fortunately – either due to the trust that I had built with employees over the previous years, or because the job market was so bad at that time (I’d prefer to think the former) I wasn’t faced with anyone leaving or trying to negotiate.
Just my two cents from the other side.
While I respect Sales VP’s approach – and the “put your money where your mouth is” aspect, in the plan to place laid-off employees – Tommy V’s approach demonstrates uncommon integrity given the situation he was in. Not only did Tommy V distribute the cuts fairly; he was transparent about the problem the company was facing. The bad news seemed to pull the company together. My guess is those two things contributed greatly to no one leaving.
Any company that says it needs a 30% pay cut from you either a) has no respect for the work you, or anyone with your skill set can do, or b) has filled out their death certificate, and merely is waiting to note the date.
Either way, start looking for new employment now. Or dust off that business plan you always keep handy.
TommyV – Im a New Yorker so I don’t pull punches, but that strategy of spreading the pain is often failed.
If everyone takes a cut, the morale sink is company wide. That will erode your employees across the board. Good people leave companies with poor morale. When 10% are let go, they are forgotten in a few weeks. I know thats harsh and heartless sounding, but that is reality. Moreover, the 10% you cut are the ones contributing the least and make your organization stronger.
The human thing to do is a REAL EFFORT to place the 10% you cut – not the useless
In my firm, if an employee has to be laid off, the manager is responsible for a 3-6 month plan to place them in the next career position as part of her/his responsibilities. We pay the employee during this period. The money it costs me to do this is a pittance compared to my recruiting costs of $0. Benefits that land the top employees are cheap in my mind and in my bank.
Memo to Nick – watch out for Bob Lewis. If you get anymore smarties like him, you will be out of the advice business.
(Well done Bob – excellent bullets)
TommyV … Thanks for the compliment! As it happens, Nick and I go way back – he’s my go-to person when I write about staffing-related topics in “Keep the Joint Running.” I pick his brains way too often to try to put him out of business.
But really, thanks for the chance to plug KJR. If you liked my bullets, I don’t charge any more for a KJR subscription than Nick charges for ATH. You’ll find me at http://www.issurvivor.com. Hope you sign up.
Bob — thanks for the thanks, but that was VP Sales that complimented you, not me. If it were me, I would have said that I loved your bullet points.
Sorry, that last line — that is what he said. (I never passed Reading Comprehension 101.)
Bob Lewis and I often trade comments on our blogs and we do indeed go way back. His http://www.issurvivor.com is an eye-opener for everyone, not just IT folks. Check it out. He’s a lot better at bullets and flowcharts than I am!
VP — your’s (10% staff outplacement) is another possible approach but wasn’t an option in my case. 1) We had done a good job historically of managing the underperformers, so there really wasn’t anyone that we felt would “strengthen the organization” by leaving, and 2) I had to cut costs immediately, I couldn’t wait for 3-6 months for the outplaced employees to leave the payroll.
Any way there are multiple ways to skin the cat depending on the situation.
My company covertly announced a 20% pay cut for the top positions. The CEO tried to buffer the shock by saying he gave himself a 40% cut. Given the reasoning for the cuts, I quickly began a new career search.
The reasoning for cuts boiled down to poor decisions that were made over the last several years. The bad decisions were blamed on former executives who created the current situation requiring the pay cut.
The method of communicating the cuts was covert since it started as a friendly conversation with the CEO that turned into oh, by the way. . . I’m cutting your pay by 20%.
Bottom line, the writing was on the wall. . . sacrifice your income at the expense of CEO incompetence.
I have since left the company . . . wishing them the best of luck.
Comments about variable pay cuts and targeted downsizing had me thinking of an alternative for less drastic cases. In some states, furloughed employees may collect unemployment. Could beat layoffs, especially considering how lean most organizations operate. In my area during the Great Recession, many government agencies, and some private employers used furloughs in lieu of layoffs. California pays UI for furloughs, although this was not commonly known even amongst government employees.