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There is talk at my company that they are going to cut our merit increases in 2009. They may also do cross the board pay cuts for most workers also. This would be instead of layoffs.
The thought is that in today's economy, they can either:
Cut everyone's pay by 10% or lay 10-20% of us off. If there is layoffs everyone suffers because we have to do the work of the people who were laid off. If there is pay-cuts then we keep most of the workers because there is so few jobs to run to anyway and productivity stays the same after a few weeks of complaints.
For the sake of discussion, you are in charge and we have to cut payroll expenses 20% but the workload stays the same. What should be done:
Layoffs -- if there are paycuts the net effect on productivity is greater AND people end up leaving anyway.
Time off without pay is not a bad option, but generally does not result in great enough savings (all benefits are intact), and if the firm actualy has clients to service the real number of people that can stay home is pretty low.
If there truly are too few jobs to run it is silly to have pay cuts, because people would still be getting paid for not doing something productive...
Given that inflation is now effectively below zero not getting a raise is not a big deal. "Merit increases" are usually just keeping your wage up with inflation, its just a bunch of smoke and mirrors though. Getting a pay increase each year makes people feel good even if in real terms their pay is identical to last years pay.
Regardless, usually a company has a certain number of loafers and waste they can cut if they really start to analysis matters. So lay offs usually make more sense. But cutting at least future increases and bonuses of employees you want to keep can be effective too.
When the media starts talking about bad times it gives companies an excuse to cut waste, just as last year and the first half of this year companies will all increasing their prices because everyone was talking about inflation.
If I were at a company that cut my pay or my hours, I'd look for another job. I have no loyalty to any company, because it has been proven time and time again that companies aren't loyal to their employees. I believe nothing that the corporate hotshots say, either; I guess I consider myself an "informed skeptic".
I've been through several layoffs in my careers, three of which were at the same company. Whenever I kept my job, it's only because I had skills and knowledge better than the people I was competing against for a remaining position. The one time I got laid off, I was one of the last people out of 500! I've always told my kids to learn as much at a job as possible, because the more you know and the better your skills are, the more likely they are to keep you if there's a downturn in business.
To answer the question, I'd probably lay people off. I can always rehire if things get better.
This isn't a normal job market, many people are fearful of getting laid off and not being able to find another job. Employers can (and will) exploit this fear.
Now, you could make the argument that once the market gets better they will remember what the company did and bail on them, but then again they may remain loyal because the company kept them on despite the recession.
During the 2000 to 2001 recession, we have not had to lay off anyone. In fact, we were scrambling to hire more people to man our practice. Same thing happening this time around. The caveat is I'm in the health care industry. We've interviewed several candidates for internal medicine, general surgery, orthopedics, ophthalmology, and ENT and we can't find anyone to fill these positions. This is getting absurd. We offered one internist $170K base salary with $30K signing bonus, paid relocation, and other perks, and this person is still hemming and hawing with indecision.
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