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Would you like a pay cut or layoff?
Pay raises take a cut
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Kai Ryssdal: Yahoo's the latest technology company looking to cut costs. Word out of Silicon Valley today is that new CEO Carol Bartz has declared a pay freeze. That's one alternative to layoffs that a number of companies are opting for as the economy sinks deeper into recession. Not getting a raise so people can keep their jobs is one thing. Getting a pay cut is quite another, as Marketplace's Jeremy Hobson reports from New York.
Jeremy Hobson: If you had the choice between a pay cut of, say 10 percent, and layoffs at your company, which would you pick?
PERSON 1: I would take a pay cut, because I don't want to see anybody else go.
PERSON 2: I'd take a little pay cut. I'd feel better about myself and if I was helping out the company. But I don't know if everyone's like me.
They're not.
PERSON 3: I'd prefer laying people off because I think that there are plenty of people at my firm who aren't carrying their weight.
The problem is, 39 percent of companies have already trimmed their work forces.
That's according to a recent survey by the human resources firm Watson Wyatt.
But Laura Sejen, one of the firm's practice directors, says for many companies, layoffs are only part of the story.
Laura Sejen: Either before resorting to layoffs or in addition to layoffs, companies are trying other tactics. So they're doing a hiring freeze or they're doing a salary freeze or they're putting restrictions in place on company travel.
Or they're cutting salaries. The Watson Wyatt survey found five percent of companies have already done so. A number that is expected to double in the coming year. Jo Prabhu thinks that's an understatement. She runs the recruiting firm International Services Group.
Jo Prabhu: In this current economy, there is no yardstick. Layoffs are happening daily, companies are reorganizing daily. Because there is no money, there is no credit, there is no way for them to pay their salaries.
Prabhu says just as home values were too high during the boom, some salaries were too high and now they're correcting.
Prabhu: Actually this happened to my son. His salary was being cut by 15 percent, and he asked me to look for other positions for him. But the fact of the matter is I advised him to stay within his current job because the possibility of him getting another job with the same or higher salary is almost slim to none.
The choice between layoffs and pay cuts isn't easy for managers either. Some see layoffs as better for morale, because everyone affected is gone. Psychologist Ken DeMeuse has been studying the workplace for decades. He says layoffs can lead to stress and guilt for employees who stick around. That means reduced productivity and higher health care costs for the company. DeMeuse says cutting pay means everyone feels the pain.
Ken DeMeuse: But it does tend to foster, how can we work together to save our company, to save our jobs, rather than creating a situation of haves and have nots.
Demeuse says research shows that for a pay cut to work, it's got to happen from top to bottom. Executives have to share in the pain.
DeMeuse: Secondly, there has to be a communication that it's temporary. That once the economy turns around, that your pay will be brought back to the level it once was and hopefully increased. Because you've shown good faith to stay with this company and now we're going to compensate you accordingly.
Whatever the payoff is in the future, experts say all Americans should brace for the possibility of salary cuts. Because right now, it's definitely an employer's market.
In New York, I'm Jeremy Hobson for Marketplace.
About the author
Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead. Follow Jeremy on Twitter @jeremyhobson
I agree that most people would take a cut in pay to keep thier job. I would but i think if the cuts are cut they should be across the board. I dont think CEO's should be getting bonus's either when we all take a cut. Some CEO's making for exaple of $100,000 a year and a bonus that is just as much if not more, 10% isnt nothing compared to a someone makeing 30,000 and no bunus.
Isn't firing a person a bit like polluting? Headcount reductions are immediate and apparently simple enough to be understood, just like overturning a barrel. Collectively, these companies are poisoning the economy. They’re dumping toxins every day, faster and faster, and I think we’re reaching a tipping point. Soon, the economy could be too sick to recover.
As the ranks of the unemployed swell, firing resources should find some resistance. We need to reverse the trend, but we are left without any way to push back on the corporations. Management is plodding down the same worn path, looking for immediate results, and layoffs seem like a socially acceptable way to reduce expenses. Are they? What we need is a reason for companies to find alternatives.
One alternative would be to force companies to pay for firing resources. Set the amount they pay using the unemployment rate. Charge more as unemployment climbs. Similarly, compensate companies that hire. Use the money gathered from companies that fire to pay the companies that expand. Pay more when the unemployment rate is high. Pay less when the rate is low. The tax payer pays nothing and benefits from higher employment and a stable economy.
For companies to realize the same immediate cost reductions, they would need to consider reducing salaries. Not just from top to bottom but more from the top and less from the bottom. Executive salaries have more room for reduction and should shoulder more of the pain. If their organization survives, it is likely enough that they will once again enjoy a disproportionate piece of the pie.
Some of the companies are considering pay cuts to prevent lay offs. Lay off is one of the ways to prevent their business or their companies from falling. But there are some companies that still consider pay cuts rather than lay offs. Life is full of uncertainties; maybe in the coming weeks to come, we need to take payday loans. Some people are still in fortunate situation because they still have their work as well as they can get payday loan. But if you think you are in unfortunate situation because you are one of those who are unemployed, why not consider searching for creative and smart ways of job hunting. I found an article about the stories of the job seekers. One guy had the right idea about job searching. He sent out an email to his friends and family with his resume attached. He asked them to forward it along to everyone they knew and promised $150 to the person who led him to a job. He found a position as a web developer in no time. If you want to read more stories about job seekers, http://personalmoneystore.com/moneyblog/2009/01/15/pay-cuts-and-payday-l....
I my case the pay cut started temporary Unfortunately it took me 3 years to get back to that pay level. Definitely it is better than having no pay at all. One more thing I observed is that after major cutbacks management always have creative ways to keep the salary down. For us half of our work was co-sourced (other term for Outsourcing) Try layoff survival game at http://www.crootpad.com
"Whatever the payoff is in the future, experts say all Americans should brace for the possibility of salary cuts."
Decades of trade deficits have finally caught up with us. Trade deficits export money and standard of living; eventually, that means US wages must fall. Unless we manufacture, and buy, our own products, this will NOT be temporary.
Jo Prabhu is very correct advising her son to stay on course w/15% adjustment. As a manager, I know Jo's son will be commented to doing a better job to help the company's success now. Others in his group may leave, but they will also join the ranks of "The new guy" and be the first to be let go from his new similar pay job if their new company falters. The ones that stay I hope and trust will form better alliance to their new found goals. I am sending this article on to head of my company with hopes we will not have to layoff good people in bad times with pay adjustments being a strong option with so many benefits. It's time to dig in and make what we want of this crisis. Best wishes to everyone. Another great article by Kai Ryssdal. Thanks
Regarding your recent guest's comment that "paycuts must be temporary" - with an assurance that "as soon as the crisis is over" the pay will be returned to its former level: I am astonished and, yes, disgusted. Those who still have full-time jobs, and benefits, should be thankful for that. There are no guarantees in this life. Why should managers and executives be owed such a fairytale promise?
