What would you do?
by Miki SaxonI have a question for you today and I’ll post my thoughts on the subject Monday.
I had a phone call from an executive today, “Jim.”
In short, Jim said that he understood why his boss was instituting pay cuts across the board, but had found out that the cuts were scaled with those who were young and single taking the biggest hit, older or married less and those with children the smallest.
This isn’t public information and when he asked his boss about the rationale, she said that the company had limited resources and that those with fewer responsibilities should be willing to make a greater sacrifice for the sake of those with greater ones.
Jim believes that this action isn’t legal and will open the company up to a lawsuit and even if it is legal it won’t remain unknown, will destroy employee trust and decimate the company’s culture.
The CEO sees it as the fairest way to deal with the problem.
Jim called looking for ideas on how to convince her that this is a bad idea; further, he would like to offer a better approach.
What would you suggest Jim do?
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July 18th, 2009 at 7:24 pm
Wow, this is a tough predicament to be in. I’d recommend Jim first talk to the CEO to make sure he’s talked to the HR department. Any decision of this magnitude must be run by HR. If the CEO has already done so and he is either ignoring the advice of the HR department, or the HR department has given it’s blessing, it is up to Jim to stick around with the company (and swallow his opinion) or find a new job with a new company.
One other question/point Miki: You mention this will not remain unknown and it “will destroy employee trust and decimate the company’s culture.” I’m curious why? Is Jim planning to undermine his boss and tell his employees? Is Jim looking to go to the local paper to share this with them or calling the EEOC? While I am no lawyer, if only Jim and the CEO know about this, and the CEO is highly unlikely to say anything to anyone, then Jim is the leak. No matter what, it is not Jim’s place to mention this to anyone except the CEO and the HR department.
Definitely curious to see what others think too.
July 18th, 2009 at 7:59 pm
Jim has two alternatives.
a- He do nothing, keep quiet, and implement the changes to the best of his ability.
b- He can resign.
Under no circumstances should he be the one to spill the beans, whichever alternative he chooses.
My rationale …
1- The decision appears to be made.
2- It is *not* unethical. In fact, it looks to me like the company is trying to rationally minimize pain. Jim may not agree with how they are doing so.
3- I believe it is legal, except perhaps in the Peoples Republics of California and New York. Even if it is not legal, that is *not* his problem.
If the decision is *not* in fact already made, I would not argue AGAINST the changes, but rather would work on a alternative that I would argue FOR.
I wonder what his problem is. Why so much angst about cutting Jimmy the single 23 year old by 15% and Joe the 32 year old married with 2 kids by 10%?
July 18th, 2009 at 8:11 pm
Hi Phil, Start with no HR department to speak of. The company isn’t that large, about 110 people, and that was one of the first areas to be hit by layoffs. The two people left are more administrative than strategic.
Jim agrees with you and isn’t planning on saying anything and of course the CEO won’t, but people talk—whether they are supposed to or not.
Oversized salaries and outsized stock option grants never stay secret and the size of salary reductions certainly won’t.
It often comes out in innocent conversation along the lines of,”Gee, I don’t know how we’re going to make it with a 10% cut, since Ann got hit, too.” To which the other person says, “What do you mean 10%? I was cut 16.” And it goes downhill from there.
July 18th, 2009 at 8:23 pm
Hi Tom, the decision isn’t final. Jim called to get some alternatives to present.
Making a decision based on age and marital status is an iffy proposition; it could be argued that it’s reverse ageism. And while it may not be illegal, it is certainly unethical.
What happens when 23 year old Jimmy is supporting his parent? Way back when I was young, single and earning good money people assumed I had lots of disposable income—they couldn’t have been more wrong. I didn’t talk about it, but every penny I earned was needed to deal with a family situation.
It’s never wise to assume that “young and single” translates to no responsibilities.
So the question still stands, what can Jim present to his CEO. She has said that she’s open to alternatives.
July 18th, 2009 at 8:26 pm
I agree, Miki, that the details will get out, even if no one knows for sure who was cut what percentage. The inequity of the plan is a serious problem. We are a hundred years past the days when those who ran companies could get away with playing such a judgmental/parental role as is implied here.
What of the single guy who has a live-in girlfriend who has two kids? Is he less entitled than the married guy with children?
Very quickly, one ends up with decisions which will seem unfair to someone who is affected.
I can’t speak to the legal aspects, but from an ethical stance, it is wrong to treat employees differently for any other reason that their status in the company.
Treat the better performers differently? Sure. Base it on seniority? Okay. Any accounting or accommodating for employees’ private lives, though, is wrong.
Now, if the CEO wants to donate his own money to help a large family through a tough time, more power to him!
July 18th, 2009 at 8:46 pm
Hi Rick, I agree with everything you say, but none of us are offering ideas that Jim can take to his boss.
We are a bunch of smart people, so let’s come up with alternatives!
July 19th, 2009 at 12:20 am
The “unspoken” alternative is obvious: cut everyone by the same percentage…. or is it? Is that the most logical? Assuming that the top performers earn more than the rest, that means that you are cutting top performers the most.
How about cutting everyone by the same “amount”? Yikes, that will hit the new star on first base!
I am obliged after these negative comments to give one alternative, even though that alternative suffers from similar troubles: within each function group, establish a base salary (e.g. comparable with the lowest starting salary in the group), and cut a percentage of what the people earn in that group above the base. An employee with a salary of 55k in a group with a 40k base and a 20% cut would lose 20% of 55-40=15k, that is he will be cut to 52k.
My conclusion is that a pay cut is always hurting people in unequal fashion. Not much you can do about that. The solution to the detrimental “leaking” of the percentages is openness. The cutting of the morale must be prevented by positive communication around the process, a real hard job for the CEO.
July 19th, 2009 at 7:04 am
Miki, as far as specific action steps for Jim, it depends a lot on the very culture of the company he seeks to protect.
If his boss is likely to be amenable, it would seem wise for Jim to propose to her that senior execs get together with her to review alternatives.
If, though, it is common for her to act without seeking input from her direct reports, proposing she do so will not be taken well. In that case, Jim is left to propose what he feels is the best alternative. There have been several ideas proposed in this thread, and he needs to decide which is likely to work as he tries to sell it to his boss.
My one word of advice would be to point out to the CEO that her pay needs to be cut more (in amount, not necessarily percent) than anyone else’s, and the amount of the cut needs to be leaked. Or, she could simply announce her own cut without any hoopla. “My own pay is reduced by $XX,000”
would fit well as the last line of whatever internal all-employee communication which is planned.
July 19th, 2009 at 7:13 am
My opinion changed several times from first reading this Saturday night when first tweeted.
My first thought, was why does Jim think this is unfair, isn’t an employer allowed to set the pay of any employee as he/she chooses?
Then on second thought, why doesn’t the employer just do a “fair” pay cut and make it an equal % across all employees?
Then I thought a very compassionate way of instituting pay cuts (and the way I would do it) is to meet individually with all employees and find out the financial situation of each. If one has a high paid spouse and can afford a bigger cut, while one employee is a single parent with day care costs, I may not cut her pay at all.
So my question, what’s wrong with an employer making pay cuts, case by case and why didn’t the employer just say, we’re making pay cuts case by case. I would.
July 19th, 2009 at 9:11 am
I like Rick’s last point: make sure the CEO’s cut is the largest. That would be the best advice to give to the CEO: if you’re going to impact others, make sure you impact yourself the most.
I would also advise Jim to let the CEO to make a small public, though personal, statement to the entire staff, to let them know that she tried to cut in what she felt was the fairest way possible, to minimize the impact. Jim may also ask the CEO to mention that this cut was done in place of massive layoffs or in place of selling the company, something nobody wants. Just something small, yet in front of everyone, can be very effective.
July 19th, 2009 at 10:30 am
Hi Rob, interesting idea bout setting a base for each area and it might work IF the CEO is willing to jump into the open communications you and others mentioned with both feet.
But if she just sticks in her toe, or has the discussion privately with a chosen few I think it will blow up in her face.
Thanks for stopping by with an interesting suggestion.
July 19th, 2009 at 10:53 am
HI Rick, based on what Jim has said, his CEO is very open and the culture is heavy on trust. That is why he is so concerned about her approach. Based on his own previous experience, once trust is breached it’s incredibly difficult to rebuild.
Your comment that the CEO’s pay cut needs to be the largest is critical to a successful outcome, but I think it needs to be larger by both amount and percentage, because if her salary goes down $10K, but it is only a 1% cut in comparison to, say, 5% for others, the pain isn’t really being shared.
I don’t like the idea of leaking the info, leaks are suspect and their accuracy can neither be predicted nor controlled, so your thoughts about the all-employee communication, open and honest, with no hoopla surrounding her own cut would be a much better choice.
Thanks for adding more to ideas for Jim.
July 19th, 2009 at 11:07 am
Hi Marjie, that’s an interesting approach, but I’m not sure how well it would work. I find that most people are more likely to talk about their religion or sex life than their finances, so I’m not sure how open they would be. Many might be embarrassed to have their boss know how they handle their money or the difficult situations with which they’re dealing. I know I never talked about what was going on in my family and would have preferred to work a second job to discussing it with my boss. And, unfortunately, people lie and there would be no way to verify it.
That said, perhaps there is a way to present the idea to everybody and see how many volunteer. It’s surprising what people will do for their colleagues.
Thanks for spending time thinking about this, I know Jim appreciates it as much as I do.
July 19th, 2009 at 11:18 am
Hi Phil, I like your description of what the CEO should cover in her statement. I also think it’s important for people to know that the entire executive staff took substantial cuts.
I also like the idea of explaining the alternatives along with the business reasons for the decisions. Not everyone understands how business works and this is a great opportunity for people to learn what makes their company tick.