Salary Cuts

Salary cuts needs to be as rational as salary increments!

Salary Cuts
Salary Cuts

It was month of April and I have worked hard for the entire year. It was more or less given that I will be rewarded adequately with hike and bonus this year by my manager. I made plans on how I will spend my bonus money. Everything was all set and I was hopefully looking towards the final day. However, I was told there is 20% salary cut across the board. But why me? It is not fair. It was shocking and hard to digest reality.

Perception of compensation is 5.4 times more important than actual pay when it comes to engagement with respect to fairness and transparency. Hence, the worst decision a reward leader can take is to go for uniform increase or decrease basis a situation. When outcomes do not match efforts of employees, they feel cheated.

Nowadays one of the prominent practice is dealing in the binary of job cuts or salary cuts. When the messaging of job cuts become prominent, employee assumes it is better to go for salary cuts. However, the pinch remains in heart somewhere because the expenses of employee has not decreased though the income has!

At the same time, organizations have it’s own challenges. Volatile market conditions, minimal spending by clients and getting things done from the workforce who is no more sitting next to you and may be with low morale. Revenues are hit or on pause for sure unless you become a part of essentials services like one in demand digital company ‘Zoom’!

What are the options left with organizations if no salary cuts? For a retail sector, it takes 20 times more effort to increase sales than reduce salary cost. Numbers may vary based on industry or maturity level of organization. However, for CFO a dip in salary seems safe option to play with in trade-off. 

Coming to HR function, what options do you have as CHRO or Reward Professional. My advice will be two fold. One is deep number crunching to know who is seriously overpaid, what are the roles where you have been pumping money without much skill upgrade of employees over years or the areas which are not so core to your business. Look for market data and if you do not want to spend money there, a good look at recruiters data can help. Overall idea is to arrive at good benchmark salary number for every employee. This data point of internal equity and external equity can help your business leaders to provide much clarity on how much can be reduced and from where!

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Depending on how big is the hit that your business is taking, you can take relevant calls. A revenue loss of couple of months may be adjusted with withholding existing variable pay depending on margin of your industry. If variable pay is not introduced in your company, it may be prudent to do it now. It provides 15-20% control on payroll cost without any kind of cuts. Sounds good deal

Similarly, there can be multiple methods to relook at compensation offerings. You never know if few employees are ready to take 10% cut for continued work from home due to saving of travel cost, whereas another may be ready to work at 20% cut for one more day off! HR Business partners can really reach out to support such initiatives to know the pulse, before you roll out a formal survey to know employees response. 

There is lot can be done by everyone. For some, it is more hard work to increase productivity as Mr Narayana Murthy affirms, for some it can be less working hours to save cost for the organization, for some it may be movement to other roles to hold the fort for exited employees and for some to do more sales by cross-sales or up-sales. Everyone can contribute. Let them do it to win over these uncertainties and become a happy employee of a successful organization.

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