Salary Cuts and Lay-offs in the Crisis

I was discussing pay cuts and lay-offs with some family members and friends recently. One stated that her dad's company fired the senior employees and kept the newer employees because they could pay them less for their work. The company seems to have the right idea that in crucial times, they need to cut their costs. However, when they fire their senior, most experienced and probably some of their best workers, they could be harming their sales. People could get a bad impression of their company. Loyal customers that have been seeing the senior employee for years, will be more likely to remain loyal to the employee rather than the company. Also, work quality could slip when there are fewer experienced employees and more new employees. I do not understand why a company would ruin relations with a senior employee who has been working with them for a long time.

I think there are better ways to handle the crisis than firing employees. Sure, the companies can hire newer employees, such as ones just hired for a new project that will not be completed due to lack of funds. For example, a project could be to design a new product, but is best for a time of economic growth. The project could be delayed and the budget for that project cut.

In order to prevent drastic paycuts and lay-offs, especially of senior, experienced workers, the company could cut everyone's pay a little to absorb the budget cuts and losses. Giving everyone a paycut instead of firing some and keeping others, could allow everyone to keep their jobs. I know people do not like to see their money cut in a time of crisis, but a little salary is better than nothing. I would hope that this could be explained to the employees through meetings, emails, or formal letters.

After discussing pay cuts and lay-offs with my dad, he pointed out that the cuts cause hightened stress in the workplace. He said that his managers are receiving cuts and are getting fired, so they are constantly worried about who is next. Their stress is directly reflected in their harsh attitudes and impatience with their employees. These managers could be harming relations with customers as well as loyal employees and could cause even more trouble for the company. If the executives would simply discuss options with the workers, and allow everyone in the company to share the financial burden, attitudes and stress levels could be improved and lowered.

I cannot help but wonder if cutting everyone's pay is possible. It seems to me, if it was possible, companies would be adopting this strategy in order to keep its employees and improve their financial situation. But, maybe the companies cannot make universal pay cuts because of unions or contracts. I found that some salaries cannot be changed without contracts. I think that this strategy should be allowed and implemented, so the unemployment rate will improve. With AIG, the executives received paycuts and were only receiving salaries of $1, but were promised future bonuses to make up for this through contracts. Salaries of $1 are a little extreme, but using AIG as an example, other companies could make smaller pay cuts and promise future bonuses to be paid when times improve.

Sources and Further Discussion:
-Salary Cuts Across the Board or Just Execs
-"Rather than put more people on the street, Hewlett-Packard CEO Mark Hurd is cutting salaries by 5 percent or more across the board." Innovation Pay Cuts
-Job Cuts vs. Pay Cuts