"Industry Standard" Paycuts in IT?

noGarnishMe! asks: "I was just reading about a Chicago-based company that has told all its employees earning over $60K/year that they will have to accept a 50% percent paycut for the month of May. This cut might be necessary in these times but keep in mind that the bozos in senior management just finished buying up several failing companies and paying some large bonuses to themselves. The memo announcing the cut is here. This cut, coming in such large chunk and in May, seems like a draconian shot to boost the 2d quarter financials. True, the annual paycut of 3.8% is modest but it ignores that fact that many folks won't be able to pay their May bills with only half their salary. I know that many of us have been through rough times these past 18 months and so I ask, what has been the approach at your company?" There are graceful and non-graceful ways for a company to handle a lack of cash flow. In the scramble for survival, especially in an economic downturn, many companies are caught off-guard and have to show their shareholders that they are doing something to get the company back on the road to profitability (which seems to be the issue, here). In many of these cases, the group most affected by such changes are the employees. It would be interesting to note how many of you have gone through this before and what you had to do to survive the shortfall.

Comments

Cash vs profitability

[Evil Al]

It sounds like these guys have a severe short-term cashflow problem, rather than a longterm profitability problem... otherwise they could have asked staff to take the cut over the next six months, or take 2 weeks unpaiod vacation some time over the year, etc.

The real problem is that cashflow problems can be extremely hard to get over... and now they've probably alienated most of their remaining staff. I would hope that this comany tried their hardest to liquidate furniture, benefits, executive cars, office space etc before they did this, otherwise they'll have a mass exodus on their hands (which may of course be what they want).

In Europe, where I work, it's much harder to do something like this, for better or for worse; most countries don't allow unilateral cuts.

Alex.

Not good

[JanneM]

Solving cash flow problems in this way is _not_ a good idea. First, the workplace will rumble with the roar of resumes being printed and sent to competitors by all competent staff. Second, if the customers get a whiff of this (and they might), some may decide not to do business with a sinking ship and leave (or at least postpone any contracts), and put the company in ever more difficulties than before.

Better, actually, to acknowledge that the staffing is too high, and cut some staff outright. Better for the company, and, really, better for the staff that do not have to live in a constant state of anxiety and insecurity while trying to do their job. I mean, what do you prefer: get cut outright, with a couple of months salary in your pocket and free tolook for something better; or losing half your pay for a month, maybe for the next month as well, then maybe get cut anyway (or see the company collapse) and never see that money again - and all the while expected to do your job instead of having time and energy to search for a better one?

/Janne

MISMANAGMENT ......period.....

[CDWert]

I cannot see any other imaginiable explanation.

I have in the last week been offered a job at a significantly higher sum than their cutoff number, and as a counteroffer I have been offered by my current employer a 24% share in a spinoff of ourselves dedicated to the sales and development in my area of expertise.

The coffers of companies marketing and purchasing budgets are ovrflowing since the 911 hold on most big dollar activities. Companies are gearing up to spend.

If you have a product/service that sucks, or if managment of that company is so blind to have had too much belief in an idea and over employed based on those misconceptions of the product or its marketplace youre screwed.

Big money is moving, you just need to be in the right place to catch it. If youre not its managments fault. PERIOD. Now with that said, managment will find any excuse they can to mask their involvment in your current situation, the first is to blame the economy, but even that one is wearing thin with most.

Overexpansion, Overmanagment, Underselling, Overpaid salaries (although 60k isnt much for even a howler monkey)

I looked at the company in this article, I still cannot see what tangible product or service the sell clearly, THAT is a problem in my opinion and probably has something to do with their current situation.

I wonder how much of a Pay-Cut managment is taking ?

Re:Working for Uncle

[Anonymous Coward]

Yep, sure helps that your 'company' doesn't have to make a profit or worry about cash flow drying up. Being supported by taxation sure provides a comfy safety net!

Summary

[Havokmon]

"We're not profitable now, and we don't anticipate our income to increase (BY NOVEMBER!?!), so we must cut expenses."

Um. The company wants to become profiable by November, so they have 6 months, and they think cutting 1 months worth of IT salary is going to do it? 60/12=5 So Instead of paying out 5k per IT staff, they'll cut that to 2500. If they have 100 people, that's 250k. Anything less than that, I wouldn't consider worth the risk..

Besides, why would they need 100 IT people at over 60k?
Doesn't sound healthy to me..

My suggestion: GET OUT NOW

Re:hmmmm

[Zathrus]

The sad thing is, you would be better off being payed $57,501 to $59,999 than being payed $60k exactly. How silly.

BTW, anyone who is earning that kind of wage and still living from paycheck to paycheck is, well, a fscking idiot. There are families that earn $30k/year on a single salary with children and still save money. More to the point, if you're working in a high tech job right now and don't have an appreciable amount of cash in an "oh shit" fund, you're going to find out the hard way what a bad idea that is.

Having 3-6 months of living money (rent/mortgage, utilities, food, etc) in liquid savings (CDs are ok if done wisely, money market, savings acct, etc. but NOT stocks or mutual funds) is really something people should do. You can scoff, but when you suddenly find yourself unemployed, it's the people with these funds that are going to be fine and able to focus on finding a new job. The people without them will be visiting bankruptcy court.

Yeah, right!

[room101]

My experience has always been that this type of crap is always followed by "save the company" pushes. Basicly, (we are laying off your staff)|(cutting your pay), but need you to work extra to take up the slack, and by the way, we have these new projects that need to go out faster than usual, because we need to save the company. If you don't work harder, faster, smarter, you will be out of a job too.

I'm glad I work for the government now....

Re:hmmmm

[Prior Restraint]

BTW, anyone who is earning that kind of wage and still living from paycheck to paycheck is, well, a fscking idiot.

I resent that. Yes, I was an idiot (back in college), racking up a lot of credit card debt. I now find myself paying off all of that, plus a hefty student loan to boot. I do quite well for myself (not $60K, to be sure), but quite frankly, the minimum monthly payments on my outstanding debts swallow just about every penny I take home (well, that which isn't taken by rent, utilities, etc.).

Your advice is definitely sound, and I'm working on building up my rainy-day fund, but it's going to take a while, and meantime, I'm vulnerable.

All I'm trying to say is, some of us are no longer idiots, but still manage to find ourselves in this position.

Re:What a 50% Pay Cut Really Means

[chrisvr]

Yeah, you've hit the nail on the head here, at least in the case of this company. The memo mentioned above is quite obviously trying to get people to quit without acutally having to lay them off and deal with severance pay, lawsuits and unemploymnent benefits:

Accordingly, we are requiring each employee at or above a certain level ($60,000 annual salary) within the Company to take an immediate 3.85% reduction in your annual salary. This reduction will be reflected in the compensation paid to you on the May 31, 2002 and the June 14, 2002 paydays.
If your position falls within the affected levels, we are informing you with this communication that your gross bi-weekly salary to be paid to you on the regular May 31, 2002 and June 14, 2002 paydays, will be reduced by 50%.

Continuing in your employment on or after May 20, 2002, will be deemed acceptance of the above-described pay reduction terms. In the event you do not wish to accept the reduction, you must advise the Human Resources Department immediately. The Company will then take the appropriate action, which may include the elimination of your position or the termination of your employment."

Which reads, pretty much "we are screwing you out of your pay. If you don't like it, then leave."

Now, if their goal was to keep employees despite this unfortunate needs for pay cuts, the second half of the memo would read something like this:

"We sincerely regret the need to have to take this action. As you are well aware, our company is going through a very difficult time financially. We are initiating this action in order to spread the financial burden out across our employees rather than take the more drastic measure of having to eliminate some positions altogether.

Our goal in this action is to increase the profitability of the company and maintain employment for each and every one of our employees. It's going to be a difficult road, but we are confident that with the support of all members of our team, we can get through this difficult time. Once we are in a better financial position, we plan to return everyone's salary to the previous level. Again, thank you for your understanding and support."

This says "we're screwing you out of your pay but we'd really rather not. We know it's a crummy thing to do but it's better than the alternative, and we hope to be able to make it up to you someday."

If I worked here, even if I wasn't being affected by the pay cut, I'd be outraged by the very thinly veiled message being given, namely that they don't care about their employees at all. it would serve them right if they lost most of their employees and then couldn't recruit new ones because people were so outraged at the way people were treated.

Hm, OK, next company on my list of places I would never want to work is now Divine.

Let me get this straight.

[Restil]

The employees of Devine, along with everyone else in the country, are aware that the economy isn't in really gung-ho shape right now. They've also heard about Enron, along with numerous dot-com companies that basically have gone belly-up overnight. They might very well be faced with the possibility of losing their job in a moment's notice.

Yet in spite of all that, those making over $60K a year somehow are unable to save enough to pay HALF the bills for one month? What would happen if they got fired? Is cost of living so horribly expensive in Chicago that 60K might as well be minimum wage?

-Restil

Re:Let me get this straight.

[Sycraft-fu]

Ummmmm, just because 60k is well above the cost of living, doesn't mean that loosing half your pay is a trivial thing. Gnereally speaking, as your income grows, so do your expenses. Few people put everything away over the bare necessities. Many people don't put anything away, even when they make a good deal of money. However, even if you DO put money away, if you invest it well it's not something that you want to just grab.

Take my parents for example, combined they make well over $100,000. They certianly doin't live paycheck to paycheck and they invest quite a bit. However it would be a hardship if 50% of their pay evaporated for a month. There are bills to be paid and I'm betting they do total half or more of their total income. So if half of it dissappeared, they'd need to tap into savings.

Well contrary to what you might think smart people do NOT save money by hiding it under a matress or even leaving it in a bank. A good deal of it is in non-liquid assets like land, their house, etc. This cannot just be easily liquidated. Even at a large loss it would be problematic to liquidate it in a couple weeks. The most luquid asset they really invest in is stocks. However even those aren't something you want to liquidate unless it's absolutly necessary. In addition to paying captial gains (on those that are up) you then loose the potential growth.

Long term investments aren't something you just want to gte rid of, it costs you far more than just the actual money you get from it. As for getting fired, generally when you have a job of that level you have a contract that gaurentees you a severence pay of at least a monet, often more. Gives you time to get a new job, and so on.

Basically ti's jsut a really dick move on the part of their company. A paycut is one thing, people don't like them but in a slow economy a 4% paycut is probably something employees making that much wouldn't really get all that mad about. The problem here is that first, it's being applied retroactive to the beginning of the year. They aren't just cutting your pay, they are cutting what they already paid you for the first 6 months by 4%. Second, it's the huge hit that the employees ahve to take over the short term. Like I said, it really causes problems, even if you have saved up.

Also this is something that will make people additonally angry because there's no reason for it. If the problem truly was jsut a slower economy and profits going down, a standard pay cut would do the trick just fine. The onyl reason for a quickm drastic cut like this is to attempt to artificially inflate earnigs this quarter. And then there is the fact that the management is NOT taking a paycut and, indeed giving themselves large bonuses.

It makes people rather angry when they are forced to endure hardship because the morons up top refuse to take any responsibliity. SOmething tells me that had the management just not given themselves bonuses, it would have more than made up the total amount the company will gain in this pay cut.

My Opinion ...

[ProfMoriarty]

Talk to your state Job Service (or something like it) and find out if what they did is a defacto firing, you MAY be able to collect unemployment if you quit. I had a job, and they were unable to make payroll. Called up Job Service, and found out that there were a few steps to take, but essentially, yes, I could collect unemployment if I quit.

Tell everyone in the IT to stick together, and you may be able to "convince" the upper management, that going through with this pay cut, at ANY time, would be a "Bad Thing"

PS ... Start getting that resume polished up right now ...

Re:Union now!

[Sodium Attack]

There's a saying in chess: "The threat is stronger than the execution." It applies here as well.

Yes, if the company were shut down, it would be very bad both for the company and the employees. But the threat of shutting the company down could prevent things like what this company did in the first place.

From their home page

[Tony Shepps]

"Business processes today reach beyond the four walls of a company and into the extended enterprise. This is new territory for many organizations, but at divine it's what we do.

"divine helps companies maximize profits through better collaboration, interaction, and knowledge sharing across their entire value chain."

OK, let me guess...

• The top management are all book-trained MBAs. They built the business on venture capital with handshake deals where who you know is much more important than what you can do.
• They are regularly written up in glowing articles in all the local business PR rags.
• They are in technology, but they have a VP of communications and/or marketing who previously did not work in technology, and who mocks it openly.
• Middle management is encouraged to think about their political standing within the company, and routinely value that over actually getting actual productive work done.
• The sales force dresses in Armani or similar, and drives late-model cars more expensive than $40K because it is supposed to give them an advantage.
• People who don't show up for happy hour are considered ineligible for promotion, despite the fact that behind their backs everyone hates everyone else and doesn't want to drink with them.
• No management has ever showed up at a goodbye luncheon, or if they did, they spent five minutes there and didn't speak to the outgoing employee.
• HR is the second-most powerful unit in the company (behind marketing) and establishes policies with the help of corporate lawyers.
• Golf is considered essential to one's career.

divine employees or ex-employees, how'd I do?

Re:Union now!

[mvdwege]

In the marketplace, unions would only inhibit the ability for companies to adapt to rapidly changing market conditions.

No, you're the one who's trolling.

Unions do not serve to protect weaker workers at the expense of the hotshots. Read your fscking Adam Smith (you know, the father of the Free Market) to see what his opinion on unions is.

Frankly, the imbalance in bargaining power between employer and employee is such that the only way the workers can get a reasonable wage and decent working conditions is by collective bargaining. This is historical proven fact, and the reason unions exist in the first place.

If an employer can't pay union scale without going out of business, that means that he is not profitable enough to pay his employees a decent wage. According to the Free Market doctrine, he shouldn't be in business, but he should go broke. Nobody's obliged to support a bad business model, and especially not by taking lower wages and worse conditions.

Remember, the Free Market cuts both ways. Read up on some history and economics before you make a fool of yourself in public again.

Mart