Job Cuts or Reduce Your Pay?

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If management gave you a choice right now, would you vote for job cuts at your company or for everyone to have a pay cut?

Obviously you cannot know ahead of time whether you will be one of those people getting laid off (if that route is picked), otherwise I don’t believe there will be many who are going to actually choose to get laid off.

Small Business are Affected

I was speaking with a small business owner who is stressed out about his business.  Her company enjoyed many profitable years and a down year would be devastating.  You see, unlike public companies where losing money is okay (they can almost always borrow more money, issue more shares etc), small businesses rely on the money it makes to survive.  Once it starts losing money, it can’t last for too long because the ability for the company to borrow money is limited, not to mention that it’s very stressful for the owner.  That’s why she (as well as many other business owners) is contemplating this exact question in an effort to cut cost.

Big Corporations are the Same

In a big corporation, decisions can be heartless and over generalized.  A mandate from up top can send managers cutting 10% of every department without regard to the actual output of each team.

In Taiwan, there’s actually a company that cut 30% of every manager’s salary.  On top of that, the company is asking many of its employees to take a non-paid six month leave.  Yes, not one week like Cisco.  6 months.  This is not the most amazing though, because many of those workers are actually still going to work (without pay) because they are afraid their job will be lost.

What Would I Choose

While part of me think that posing the question for all employees might be good tactic, it almost qualifies as inhumane.  However, if I had to chooose, I would say that job cuts are better than pay cuts.

On the business owner’s perspective, pay cuts are extremely demoralizing for employees.  They are the engine of the company and good employees should never be punished.

As an employee, I never want a pay cut because it adversely affects my path to a higher salary forever.  Think about it, most people get the biggest salary jump when they get promoted or go to another job.  So if my current salary is less, that becomes the basis for my next jump.

So, how about you?  Vote below.

[poll id=”21″]

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{ read the comments below or add one }

  • Rob - Credit Card Debt Law says:

    I think it depends on the company and the positions of the employees being asked to sacrifice their pay. If they are making 60-100 K + a year (depending on the amount of schooling for the position), then I don’t think that anyone can complain too much about a pay cut. Check that – over course they will complain. But under a certain amount of yearly income, I think laying people off makes more sense. In the last position of one of my friends, he would have been better off on unemployment than taking a pay cut.

  • lOLA says:

    I am in this postion right now. My company has choose to cut everyones pay without giving us a choice. I have been here longer then most and would rather be laid off. I have not decided if I am going to agree to the pay cut yet.

    • strawberry says:

      I transferred to new position which gave me a $3.00 raise. worked there a year. They had one girl that left on maternity leave so they hired another girl to take her place while she was gone. Girl had baby and came back to work. well they didn’t need all three of us, so they kept the girl that came back and kept the girl they hired ( the boss’s best friends daughter) and let me go. Neither one of them have been there over a year. I have been with company 16 years. The let me go, and put me somewhere else. but they also cut my pay $2.00 an hour. I am not likeing that part. Is that legal?

  • Sam says:

    I would go for pay cut, I would be afraid I couldn’t get another job in this market. Things are starting to get scary. I sure hope things turn around soon.

  • Kate@LivingTheFrugalLife says:

    I would say the employer should, so far as possible, leave it up to the employees, as Marci’s did. If they still couldn’t balance the books after trying that strategy, along with a hiring freeze and other cost cutting measures, then I would say a pay cut is the best solution. Half a loaf is better than none. I think at that point, having been treated with honesty, and having been given some choice in the matter, the employees would understand. And if they felt their prospects on the job market were good enough to jump ship, then the paycut would only be a further motivation. If the job market sucked, they’d probably realize that they were lucky to still have the job, even if the pay were lower.

  • Mark says:

    It depends on which employee you are. If you are the employee that would be fired, you want the employee pay cuts. If you are the employee who will get to keep their job then job cuts are your preference.

  • Doctor S says:

    Don’t cut my salary, cut jobs, we have lenty of baby boomers just filling in their time sheets at my company of over 12,000 employees. These senior members are just sitting around collecting paychecks, adding zero value to our bottom line.

  • Ross says:

    Salary cut on a low paying AND high paying job is devastating. Who would ever want to get a salary cut? I agree with everyone that salary cuts will kill moral at any company.

    Giving the decision to employees is quite interesting although not everyone will be happy. I would be surprised if people don’t just take extra days off and then look for jobs during those days.

    Great question and post.

  • Emily @ Taking Charge says:

    Yikes, this is a tricky one. But I think cutting jobs is the answer. Cutting salary isn’t a big deal for those who earn big bucks, but for people like office assistants or customer service people who earn $12/hour, a pay cut on a low-paying job would be devastating. I agree with Steve that pay cuts will cause good people to leave, and would piss the whole company off. A company would probably be better just cutting a small amount of jobs than reducing everyone’s pay. Though it is kind of a damned if you do, damned if you don’t situation.

  • Steve C| says:

    Job cuts and it’s a no brainer. If you cut everyone’s salary, you’ll piss off the good people at your company and they’ll leave. By making job cuts, you are trimming the fat off of your company which will work out better in the long run.

  • marci says:

    With the day cuts, and not the job cuts, we were all still getting in over 30 hrs per week – which is what we need to keep our company paid health insurance… so that was a reason some people chose to lose a day also. At least the health insurance was still company paid. While it would be paid also during a lay off, the employee would have to pay back the premium from future earnings, which is difficult to do.

  • Craig says:

    I agree with the happy rock. Salary cuts would probably also cut productivity. It would bother everyone and there would be complaints around, and still have an affect. May just be better to cut jobs and work your way from there.

  • Kelly Rusk says:

    I heard a report on the radio about strategies to avoid layoffs and it was similar to what marci said–giving employees the option to take extra unpaid vacation days, weekly or bi-weekly. I would definitely go for this option, and use my extra time to earn money writing or freelancing on the side. So I could, in theory, end up making MORE money while the morale is still high at work because no one was laid off or getting a pay cut. Sounds perfect to me…

  • CD Rates Blog says:

    Cutting Employees might save my job, but then again, who knows I could also be one that would be cut.

    So to be selfish, I would cut before reduce, but if everyone could reduce and save people’s jobs I would go that route, assuming everyone being kept was good quality.

    No if there were some people that should be let go anyway, it is an opportunity to do so.

    Lay-offs is also demoralizing. I went through about 6 rounds over a two-year period at another workplace. I was kept each time, but seeing good people, and long-time employees being escorted out with a box and being watched like they had committed a crime didn’t leave me warm fuzzies. That was finally what cause me to leave.

  • Calvin says:

    I’m with most people. Cutting jobs is way better than getting a pay cut. I love marci’s company’s tactic though because while it probably serves the same purpose for the company, it makes the employees feel better.

    But then once they do that, it’s hard to go back and cut or doing another rounds of pay cut if the economy gets even worst. This strategy is also only good assuming that every employee is a solid part of the company.

  • Salary says:

    Even in bad times in 2001, per there is not much pay cut, just direct layoff. So I guess this time is better, we can have the paycut option or shorter work days option. I will stay get pay cut and benefits, of cause.

  • Miranda says:

    I work from home as a freelancer, so I haven’t had to make this choice. But I think that if it came down to, and the decision had to be made, I guess I’d take a pay cut. But I like to think I’d be one of those awesome employees that wouldn’t get cut 😉 At any rate, I agree with the Happy Rock that a straight up pay cut might be detrimental. Perhaps you could offer more unpaid personal leave.

  • marci says:

    Our company had a 3rd strategy…. They asked the employees if they wanted to find anoother job, to be laid off, or if they wanted shorter hourswith the same hourly pay.

    One found another job.
    One asked to be laid off.
    The rest asked for 4 days at same hourly pay, with the 5th day off.
    Those getting overtime had to cut back to 40 hrs/week.
    Those in management positions had to keep hours short, no overtime, but no days cut.

    Me – I was already working only 4 days by choice so I was not affected. Remember, I’m the nut that values my extra day off more than the money 🙂

    I like the way my company left it up to the employees to do what they each felt was in their best interest.

  • The Happy Rock says:

    Salary cuts would be a bad idea IMO. It is a way to kill productivity and get a bunch of angry employees.

    Cutting jobs is definitely more strategic.

    How about performance based incentive type contracts?

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