In a time of rising unemployment, would you welcome a salary reduction as an alternative to a layoff?
In the past nine months a growing number of major companies, including FedEx, Hewlett-Packard, Advanced Micro Devices and The New York Times, have all trimmed their staffers' base pay. Most have made larger cuts for senior executives and smaller ones for the rank-and-file.
According to a Hewitt survey, some 16% of companies in a study of 518 large U.S. employers have made base salary reductions during this recession, and another 21% say they are considering one.
The key is to be sure stars still make more than their lesser-performing colleagues, even after a pay cut. Telling an A+ player that he or she is going to take home less money this year, despite stellar performance, seems like a sure recipe for undermining enthusiasm.
Dave Ulrich, a professor at the University of Michigan's Ross School of Business, adds that trimming salaries is less risky in well-managed companies. He thinks pay cuts may even boost morale if they avert layoffs among highly engaged employees. "I don't think it's just pay that keeps people connected to a company," says Ulrich.
But other human resource experts argue that managers are paying too little attention to the perils of such cuts. "We haven't yet seen the unintended consequences," says William J. Conaty, an advisor to private equity firm Clayton, Dubilier & Rice. "People have long memories. They'll remember whether they think they were dealt with equitably."
Source: BUSINESSWEEK, June 8, 2009
