Pay reduction or Lay offs?

Paul in Cannon Beach · April 2009

For those of you who have walked this road before, would you say overall organizational morale would be damaged more from a percentage pay cut of 10 percent across the board or a lay off of 5 percent of the positions?

Also, I know this sounds odd but are there positive aspects to lay offs? Are the employees who remain more engaged or more focused on organizational goals?

KSR6450 · April 2009

Recently FedEx implemented both. Morale was damaged almost beyond repair by the layoffs - mainly by the way they were handled. The pay cut was met with relief since people still had their positions.

NaeNae55 · April 2009

I have no experience with pay cuts, but I do with layoffs. Morale is bad company-wide after a layoff because everyone wonders who is next. Plus, those left behind have lots of extra duties and deadlines. They tend to jump ship as soon as they are able.

I have read that pay cuts are better, assuming management is included, because employees realize you are doing everything you can to keep jobs. If pay cuts only hit the regular workers your morale will get worse. If management not only takes a pay cut, but takes a bigger hit than the rank and file, morale jumps and loyalty skyrockets. That is just what I have read, not experienced, but it makes sense to me.

Good luck!

Nae

joannie · April 2009

I think it depends on the employees. If the 5% laid off are short term employees, if the reasons behind the layoff are communicated properly, the remaining employees should understand why the layoff was necessary.

In the pay cut situation, if the majority are long term employees, again, with the proper communication, they should understand and be appreciative of the fact they still have a job.

Interestingly enough, I saw an article earlier in the week that recommended, for morale, pay cuts be considered before reducing benefits. The rationale was employees are more cognizant of the cost of benefits and more appreciative for them.

plynnl · April 2009

Our company is small and we chose paycuts. All agreed and this saved one employee's job. When our company gets back on track and the economy is better we plan to pay back the paycut amounts scattered over pay periods during the rest of the year.

Paul in Cannon Beach · April 2009

This is very interesting. Having never experienced a lay off I really have no idea of how it impacts an organization. I could imagine some employees feeling relieved that their jobs were saved or even being more focused on how they contribute to the company.

Probably the least negative approach would be natural attrition. Not rehiring for positions where the person leaves. That isn't always feasible though.

My brother works for the post office and he feels they are handling their economic woes very badly. People are being let go, relocated, or having hours reduced without much consideration or compassion.

KSR6450 · April 2009

Regardless of what is done, the manner in which it is done will affect the remaining employees. On Black Friday (as employees are now referring to the day of the layoffs at FedEx) an outside company came in and over the course of several hours called people into an office to let them go. Many of these were long time employees. They were not allowed to gather their things nor were they allowed to say goodbye to co-workers, instead they were immediately escorted from the building. Imagine sitting there wondering if the 'hand of death' was coming to you next. It was so traumatic that many are still shaken by the experience. Again, I agree with you - compassion for your employees and a willingness to show them some dignity will go a long way with those left behind. I wish your brother the best.

This did not instill a sense of 'lets pull together for the company' rather the opposite has happened - there is mistrust and fear. This used to be a company where people 'bled orange and purple' - that is no longer true.

Edit: An aside, no one I know was let go - so what I am hearing about morale is from the many I know who still work there.

ACU Frank · April 2009

I'm amazed at how many employers have the perception that handling layoffs with no tact or compassion will only affect the 'non-loyal' employees. They feel they have a balance of good will built up with most employees, and those employees will understand the company was only doing what it had to do. It just doesn't work that way.

NaeNae55 · April 2009

Actually Frank, I am not surprised. There are an enormous amount of people out there who don't know or care what tact is all about. Many believe the best way to manage is through fear. Sad but true.

KSR6450 · April 2009

I understand the need to cut costs in this economy but should common sense be cut as well?

[B]Nurse gets called out of surgery to get pink slip[/B] [URL]http://www.msnbc.msn.com/id/30231451/?gt1=43001[/URL]

NaeNae55 · April 2009

The manager is obviously a loose screw.

Voila! One more job they can cut.

ritaanz · April 2009

Paul we have done all of the above. First the layoffs. We had 3. One in October, another in January and the last one (I hope) was in February. Then a 5% salary reduction for all employees. This week we reduced the manufacturing personnel's hours from 40 to 32.

Morale? Ha! I have employees trying to figure out how they are going to pay their mortgage. I know they understand the situation and that the company has no other choice. They see that there is very little work coming in. They are terrified.

But, as fearful and anxious they may be, they still have a job With the economic conditions out there today, even if your company did not do anything, it is difficult to maintan a happy face.

debboyer · April 2009

What happened to professionalism and simple common sense!? I for one would not want to visit that medical center!

KSR6450 · April 2009

As stated by a previous poster, be sure executives are also affected by pay reductions. Our top three executives have not had a pay increase since early 2007.

I would hate to be among the HR personnel at these companies.
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[COLOR=#666666][FONT=Tahoma]CEOs earn big bonuses for bad year[/FONT][/COLOR]
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[COLOR=#333333][FONT=Tahoma][/FONT][/COLOR][COLOR=#333333][FONT=Tahoma]“Qwest had a bad 2008. Revenue declined by just 2%, but earnings per share and net income dropped by 74% and 77%, respectively. Qwest stock fell 43%. Thousands of employees lost their jobs. But Mueller got an annual bonus of $2.25 million, up from zero in 2007. That was on top of $8.2 million in salary and other compensation.”[/FONT][/COLOR]
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[COLOR=#333333][FONT=Tahoma][/FONT][/COLOR][COLOR=#333333][FONT=Tahoma]“To be fair, some high-profile execs did take less last year, in bonuses as well as salary. But in many cases, the bonuses kept flowing, even when the profits stopped and the stocks plunged.”[/FONT][/COLOR]
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plynnl · April 2009

Our CEO and owner of the company makes less money than all of our employees. She has other means of income so her salary does not burden the company. You have to give her credit for that.

Tony Kessler · April 2009

Here is a link to a Wall St. Journal article on five ways to boost morale after a layoff. Probably stuff you have all thought of, but it may provide a good check list. tk

[B][URL]http://tinyurl.com/cy9pvn[/URL]

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Paul in Cannon Beach · April 2009

Ritaanz, in your opinion what had the most negative impact on the morale of your organization:the pay cuts or the layoffs?

I am realizing what a complex issue this is. I know that sounds naive but we have never laid off anyone. There is a whole PR aspect to this as well. The news is reporting which companies lay off employees every day. There are the horror stories like the nurse and Fed Ex which are huge black eyes for your company's perception.

On the other hand, the idea of a group of people agreeing to a percentage pay cut in order to save jobs sounds almost heroic.

Would it be wrong to consider approaching the staff as a group and ask for their input? Layoffs or a paycut? If they voted paycut, it would be MUCH easier to implement as there would be more immediate buy-in. ]\

Our situation is even more complex as we provide housing for the majority of our staff. So if we lay someone off they not only lose their job but they lose their housing. At the very minimum, I feel we would have to give someone 30 days to find new housing. That means you have a laid off employee living basically on your premises for a month. I can't see how that would be a good thing.

KSR6450 · April 2009

Your company is considering these options? Since you provide housing for your employees they may not be as adverse to a reduction in pay. You mentioned a10% pay cut in your initial post, is this correct? How many employees would constitute 5% of your staff? Would the job cuts come from all areas? If you approach your employees and ask them if they would prefer a pay cut to job losses surely most of them will realize their necks could be on the block and choose the pay cut. Difficult situation to be in; good luck.

ritaanz · April 2009

Paul, in my opinion, lay-offs have the most negative impact. A reduction in hours and/or salary is not as devastating. People still have a job and a place to go every day and stay busy. There is also the human emotion called "hope" that sustains them.

NaeNae55 · April 2009

Rita is right. Having a job, even if you are barely getting by, is much better for your self esteem. It is easier to get a job too.

I have read where some companies have left it up to the employees, and they always choose the pay cut rather than the layoffs. I think it helps with buy-in. It helps keep them from feeling things are completely out of their control, and after all, if you choose a pay cut how can you then complain about it?

Good luck to you and all your employees.

Nae

Paul in Cannon Beach · April 2009

At this time we are just looking at options if our revenues don't increase. We have tucked emergency funds away each year so we can weather a decrease in decrease in income but if things dont improve then more serious action will be needed.

Nae, any chance you could remember where you read that article about allowing employees input in what direction to go?

NaeNae55 · April 2009

I read it more than one place, but page 55 of the March 9th issue of Business Week has an article called, "Cutting Costs Without Cutting Jobs" by Matthew Boyle. It may not realy be what you are wanting though, as it has a number of ideas, including sending your workers to help others.

I wish I could remember some others. :ball and chain: I take a number of ezines, and I know I read at least 2 articles on it in the last 2 weeks. I believe John Phillips has addressed this in his blog too. Sorry. Wish I could be of more help, but the memory part of my brain is as old as I am and so a bit worn out.

Paul in Cannon Beach · April 2009

That's ok. I am pretty good at googling what I need. I found a couple articles online.

Celeste Blackburn SPHR · April 2009

You also have a white paper available HRhero.com (it's free, you just have to give us an e-mail). You can get "Five Alternatives to a RIF" at [url]http://www.hrhero.com/whitepapers/index.cgi?wprif[/url]

Celeste

Paul in Cannon Beach · April 2009

Thanks Celeste! I read the white paper and it was helpful. There is another one on layoffs that was also very good.

Right now we are taking a "wait and see" approach. Our income is generated by guest registrations and its very possible that we will see a late rally in registrations as we get closer to the summer. If that is the case, we may not have to consider lay offs.

Regardless, I think a "business as usual" approach has to be set aside. Every dollar spent has to be considered and evaluated. Increasing income and decreasing expenses has to be an organizational priority that is communicated and understood by everyone. I think that is my main concern at this point. There is a tendency to return to "normal" and I think that would be counterproductive.

Pay reduction or Lay offs?

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