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Pay cuts force workers to live with less

Marketplace Staff Aug 20, 2009

Pay cuts force workers to live with less

Marketplace Staff Aug 20, 2009


Tess Vigeland: As the recession drags on in Vegas and everywhere else, more businesses are trying to cut costs without necessarily cutting staff. A recent survey by outplacement firm Challenger, Gray and Christmas found that more than a quarter of companies polled are slashing or freezing salaries. Others are requiring some employees to take temporary unpaid leaves.

From WBUR in Boston, Monica Brady-Myerov tells us how some of those affected are learning to live with less.

MONICA BRADY-MYEROV: Some people have taken their salary cut with a little irony.

Members of the largest union at the Boston Globe held a cookout dubbed “Farewell to Fair Wages” when the paper’s owner cut their salaries by nearly a quarter. Reporter Scott Allen saw several hundred dollars a week vanish from his paycheck.

SCOTT ALLEN: The day after the company said they were going to cut our pay, I immediately dropped my contribution to my retirement fund down to zero to free up that cash to make up part of it.

Some of Allen’s pay cut has since been restored, but he’s still not putting away as much money for retirement as he used to. It’s probably no surprise newspapers like the Globe have had to cut salaries to stay afloat. Even before the recession, declining ad sales robbed them of much of their revenue.

But H.R. departments are also taking out the salary shears at law firms, high-tech companies, factories and ad agencies.

Tom Kohan teaches management at MIT’s business school. He says the wage cuts are the worst since the Great Depression.

TOM KOHAN: It’s more prevalent now than it has been in any recession that’s been recorded.

Economists say more reductions are likely if the recession persists.

Kathy Lemus of Cambridge says she can’t afford to lose much more. She sells Hondas at a local dealership. With cuts in her base pay and a drop in commissions, she’s making about a quarter less than a year ago. She says she’s stressed and not sleeping well.

KATHY LEMUS: There are months that you don’t even break even on the rent, the bills, the food, child care, so it’s tough.

To make up for the shortfall, she’s running up credit-card debt and taking out loans. Lemus has an 8-year-old son she’s caring for alone.

LEMUS: When you ask him why doesn’t mummy have money for games, because she’s got to put a roof over my head. And she’s got to pay the electricity, and she’s got to put food on the table. That’s coming out of my 8-year-old. It’s hard to hear.

In this recession, not even executives are immune from a pay cut. Fran Kelly is CEO of Arnold Worldwide, an advertising agency in Boston. In April, he cut all salaries at his company by 10 percent, including his own.

FRAN KELLY: I had more questions about the cut at home than I had here at the office. Because that’s where my paycheck goes and that’s who was most affected by it.

His wife keeps track of the family finances, and she started cutting the household budget.

KELLY: We postponed a trip. We’re thinking about getting another car. We may buy a nice, used car instead of a new car. And even when we’re out to dinner, my wife inevitably will order just the appetizer, not the entree.

Others are changing their eating habits too.

Maura Hodge has been temporarily furloughed from her accounting job and lost 80 percent of her salary. Her husband works and they have no kids. They’ve adjusted by putting less money into savings and cooking more at home.

MAURA HODGE: I make all of our own bread, I’ve tried to make cheese. I make our own yogurt now, and we have a garden and that helps cut back on some of the expenses as well.

Hodge says her reduced income has made her appreciate life’s simple pleasures. But she’s looking forward to fall. That’s when she resumes work at her accounting firm and starts getting her full paycheck again.

In Boston, I’m Monica Brady-Myerov for Marketplace.

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