Can a Reduction in Salary be an Alternative to Layoff’s?

With the beginning of the current financial meltdown and global recession of an unprecedented kind in the last 4 decades the corporate world has been scrambling for answers to new questions, questions that were never asked when basking in the luxury of flowing smooth business profits and cash or were pushed aside because the external market competition kept occupied the leaders of business institutions. As the current recession deepened layoffs have been reported from across the globe to cut down on costs or reduce operations.

Concerns have been rising amongst the HR practitioners as layoffs continue. There is a noble desire to find alternative ways with a view to reduce the impact on the job market. An interesting question that is often raised is: What if we reduce salaries across the board and retain the people instead of resorting to layoffs and making people jobless. Today I would like tackle this question from an organization perspective.
Cutting salaries and laying off are not two mutually exclusive options and the implied assumption that each of them will serve the purpose of cost cutting in the same manner, stands to be questioned heavily too.
Laying off implies restructuring the organization because many job positions will be either eliminated or merged with existing ones. The result will be an organization where job profiles undergo a change and it retains people who can fit into this smarter structure. In other words, restructuring will result in different skill set requirements leaning substantially toward multi-skilling and multi-tasking; many under-utilized potentials can get a chance to prove their worth and the overall motivation may actually go high (”they went and we remained - sigh!”).

In short, this re-engineering may come as a blessing in disguise and give the organization more depth, trigger a durable change process in values and culture and who knows take the organization to higher levels not thought of before. Just because the occasion for this exercise has been thrown at the company by the strained economic environment doesn’t necessarily mean that the company cannot take advantage and reap the same benefits from the restructuring exercise as it would have done if the same was done as a proactive exercise in normal economic conditions as well.

On the other hand cutting salaries across the board may serve an altruistic purpose (that too is a perception I choose to leave for some other occasion), it may give rise to some other problems in management. First of all, the same people will be doing the same work. Perhaps at lesser efficiency because of the recessionary impact on the business. In no way can we regard this situation as healthy for building an organization for the future.

Moreover, it is known in basic texts that money is a dis-satisfier, meaning less money can de-motivate, more money will not necessarily motivate. The recall of the fact that “My job was saved” is very brief. What lasts is the perpetual memory that “I am getting less than before”. Yes, that’s human nature.
We must remember that an organization thrives with high spirited employees not with bemoaning ones. The overall atmosphere of despondency, however temporary that may be promised to be, will not be conducive to the organization’s performance, it would rather be highly damaging because it is this difficult period through which a highly spirited and committed human resource will steer the company out of the troubles. More than ever before, therefore, you need a highly motivated human resource.

Cost cutting is not an exercise in arithmetic it is an exercise in attitude reformation. It is a change of paradigm of looking at half glass of water differently. And it is a shift towards value enhancement rather than a clinical exercise of cutting numbers down. This is time for innovation. Not for saving a few jobs at the expense of the organization’s future.

However, a word of caution in the end. It has been widely observed that while people are laid off, the top management’s select few choose to enhance their own perks and also visibly by upgrading their cars, taking away higher bonuses etc. as if the exercise in layoff entitled them to a performance bonus of sorts. This is highly damaging for the organizational morale. While the top management may not be laid off just to reduced numbers, it should also be made to realize that it is the top that bears greater responsibility in tougher times and should shoulder that responsibility with grace. As a token for morale boosting, even cutting down on some of the perks temporarily may be advisable but certainly not the other way round.

This article was contributed by Mr. Anis Motiwala, a Management Consultant at ABACUS Consulting