The Chicago Tribune reports today that many companies are avoiding or delaying layoffs by issuing temporary, across-the-board pay cuts. For instance, the local office-products supplier Acco Brands is cutting all 2,000 employees' pay 47% over six weeks beginning Feb. 23. The company will "provide short-term financial
assistance to employees put in the 'most extreme circumstances' by
allowing them to borrow from future earnings."
A Watson Wyatt executive was quoted as saying pay cuts and salary and pension freezes are last resorts for many companies. "I remember talking to companies, and we'd go down the list of options
and we'd say temporary pay cuts, and they'd say, 'Can we do that?'"
They can, but they usually don't want to.
"Usually, companies say they prefer layoffs to pay cuts," said Yale
economics professor Truman Bewley. "It gets the misery out the door."
Especially at a moment of such universal economic trouble, I generally like the idea of everyone sacrificing together, as opposed to splitting society into two groups: profound victims and scared survivors.
Do you?
And more to the point here: Have you ever had to communicate a temporary pay cut? What do you say and how do you say it?
I wish more companies would adopt the philosophy of layoffs as an option of last resort instead of one of expediency.
I’m reminded of hearing Jack Stack, CEO of Springfield ReManufacturing Corp. (SRC) and creator of “The Great Game of Business,” speak early in my career. I was impressed at his story about buying SRC and taking it private during a very challenging time and how all employees were asked to come up with strategies and ideas to make the initiative work.
In addition to identifying cost reduction measures, I recall that some recommendations included voluntary wage reductions until the company’s financial situation improved. I can’t recall if the wage cut ideas were adopted but I remember thinking that this was a good example of creating the ultimate engaged and motivated workforce.
If more companies truly believed that employees were their most valuable assets, and led from a viewpoint of partnership, I think many management teams would be surprised just what could be accomplished with everyone pulling together for a common cause instead of operating from a “we vs. them” standpoint that seems to be the norm.
Agreed. But I think the “everyone pulling together” notion will require mindset readjustment like the opposite one we had to deal with in the 1990s, when employees and management rewrote the employment contact to say: “We owe each other nothing beyond today’s honest work for today’s honest pay.”
I’ve always thought a more socially, culturally, economically interdependent (but not paternalistic) organization was sustainable.
Models exist. Southwest Airlines comes immediately to mind.
Right?
Maybe these hard times will force organizations to be … organizations again.
In our organization we have recently had a number of employees posting comments on our intranet and through other channels suggesting we offer everyone the chance to move to a four day work week in which they’d work 80% of full-time hours for 80% pay. So effectively they are offering to take a 20% pay cut as a voluntary cost-savings measure. And in a number of cases the employees have explicitly suggested it as a way to help avoid any potential layoffs.
It’s interesting to see the suggestion coming up from employees. Will we actually do it? Well, we haven’t ruled it out. And if we did pursue it, the fact that the idea has come up from employees will help make the communication easier.
I know a guy who ran a high-tech business in Japan that went under, with all employees losing their jobs. Get this: as the owner of the business, he had to pay restitution to the employees — even though his company had gone bankrupt — to avoid jail time. So, for several years after his business went under, he made monthly payments to the Japanese government.
I’ve always thought that GAAP should be changed so employees are actually accounted for as human assets rather than an expense that can be cut in the blink of a financial executive’s eye.
As my cousin, a high level muckity-muck with Bank of America (who was forced out at the beginning of the credit crisis last summer) once told me:
“Employees might be a company’s most valuable assets but, unfortunately, they are also the most liquid.”