I was recently interviewed by a reporter for the Thomson Reuters' HR Wire (Paula Santonocito) who was researching trends in compensation; particularly those relating to companies reducing pay as a response to challenging economic times. Below are some excepts from her recently published article.
ANALYSIS & PERSPECTIVE
Implementing staff cuts is only one measure companies have taken to reduce costs. Organizations are also cutting salaries, bonuses, and benefits.
A GROWING TREND
In recent weeks, the practice has become more common. Generally, others get wind of these kinds of reductions in connection with layoff announcements. A company will release information about job cuts and provide specifics about other cost-cutting measures.
For example, when department store chain Macy's said it will slash 7,000 jobs, the retailer also announced it is eliminating executive salary increases for 2009, reducing the amount of its 401(k) contribution, and cutting its dividend.
Similarly, when announcing it would cut 1,100 jobs, upscale retailer Saks said it would suspend matching 401(k) contribution and freeze salaries.
And the practice isn't confined to the retail sector.
When announcing it will eliminate 10,000 salaried jobs worldwide, General Motors, the largest U.S. automaker, said it will reduce executive pay by 10 percent, and reduce other salaried employees' earnings between 3 and 7 percent.
Likewise, in connection with announcing it will cut 450 jobs, UK-based luxury automotive maker Jaguar Land Rover, a subsidiary of Tata Motors of India, announced that management bonuses have been eliminated and management salary increases have been deferred.
These are only a few companies that have made headlines for their cost-cutting initiatives.
Perhaps the most noteworthy example, and the one to get the most media attention, relates to bonuses. There has been much debate about whether executives at companies that take federal bailout money should receive bonuses. The argument for bonuses is that they are part of a salary package; the argument against is that these times require sacrifice.
SHARING THE PAIN
Wherever an organization chooses to cut, there should be consistency. So says Kent Romanoff, compensation consultant and founder of IncentivePlanBuilder.com, an online incentive plan design tool.
Romanoff tells HRWire the objective is to create a cost-cutting initiative, but it is also to build a lifeboat, and the message should be "we're all in this together."
However, he acknowledges there are challenges. "The term 'fair' is very much in the eye of the beholder," Romanoff says.
Just as there are different ways to increase pay, there are different ways to reduce pay, he explains. Flat dollar increases or decreases are one way.
Yet, yearly increases are typically tied to percentages of base pay. This method tends to be unfair to someone at the lower end of the scale, Romanoff says. Likewise, when you go to the other side of the equation, the salary reduction mode, you run into the same issue, he says.
Although some argue that the percentage should be the same for everybody, Romanoff disagrees. "I advocate against mindless percentage increases on the way up or down," he says. "I do believe it is mindful for executives to take a bigger hit."
Romanoff sees an "incredibly unbalanced relationship" between what executives are paid and what they actually earn. He tells HRWire we have this inequity built into the U.S. compensation arena, and there is a need to level the playing field.
ABOUT THE AUTHOR
Paula Santonocito is a business journalist specializing in employment issues. She is the author of nearly 1,000 articles on a wide range of topics, such as impact of world events on the workforce, recruitment and hiring, retention, HR legal issues, benefits, diversity, changing workforce demographics, and the Internet as it relates to the workplace. Articles by Paula Santonocito have been featured in many global and domestic publications and information outlets, including Thomson Reuters’HRWire; The Wall Street Journal site CareerJournal.com; Expatica HR; AIRS News; Monster.com Office HQ; Online Recruitment Magazine; and others. In addition, her work has been posted at more than 100 web sites throughout the world, referenced in academic and legal publications, and translated into several languages. Paula Santonocitoserves as AIRS News editor, features editor of Online Recruitment Magazine (North American edition), and career editor of SingleMindedWomen.com.