Cutting Salaries

Filed in archive Operations on June 6, 2009

Late last month BusinessWeek ran two stories on cutting salaries: Does It Pay to Reduce Pay? and Cutting Salaries Instead of Jobs.

Does it make sense?

Once considered off limits for salaried managers and professionals, base pay reductions are becoming increasingly common in today's brutal recession. Many human resources experts believe the recent moves by major companies-household names such as FedEx (FDX), Hewlett-Packard (HPQ) and Saks Fifth Avenue are all trimming salaries-could present perils when the economy turns back up again. They argue that star performers could bolt to other companies and that morale and productivity could suffer.

But others see an upside to reducing pay rather than making more layoffs. One of them is Dan Ariely, the author of the popular behavioral economics book Predictably Irrational, and a professor at Duke University. He believes that in the right environment, pay cuts can even boost morale and loyalty.

Ah, the key... "in the right environment." Suddenly all those workshops on team building and webinars on corporate climate take on new meaning. Have you built an environment where cutting pay and keeping everyone will improve moral? Or will it demoralize your staff? And will your people feel more loyal because of your efforts to "keep the team together?" Or will the best ones bolt to the competition for a few extra dollars?

These two BusinessWeek articles are insightful...


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