09/06/2012 05:38 pm ET Updated Nov 06, 2012

Handling Pay Cuts: The Reality of Our Time

From all corners of the globe it seems a universal assumption that the world is meant to progress, grow and prosper at a continuous and infinite rate, regardless of the costs. As a microcosm within the broader societal context in which they sit, organizations are a good example of this as we watch the economy shrink and businesses scramble to adapt.

Downsizing is not only a reality, but also a necessity forced upon us when a system under pressure has been pushed beyond capacity. Whether we are talking about our global resources, economic infrastructure or organizational wherewithal, overextension inevitably leads to the need to pull back and contract.

The most common strategy companies employ is job elimination because of how effectively and swiftly a cut in payroll expenses improves the bottom line. But there are also cases where efforts to scale back come in the form of pay cuts as a means to that same end. Sometimes, thought of as the lesser evil, companies will propose salary decreases as a way to realign the balance sheet or stop the business from hemorrhaging, without putting people out of work. Admirable in theory, but it's a tough sell nonetheless. Generally speaking, employees are not apt to embrace making less income, not in a society where more is never enough.

But, what if companies could stabilize growth and improve overall performance by enculturating employees with an appreciation that "less is more" and that valuing the greater good over oneself has its advantages? For one, the company, and therefore its employees, would be less vulnerable to economic swings, which in turn would create more security for everyone in the long term.

It sounds simple, but in practice it is not. Like any other relationship, employment is a two-way street that requires give-and-take, which means the implications of pay cuts go beyond monetary sacrifice alone. Work has always shaped our identities. We've long depended on it to define who we are, as much as wages have informed our perceived value and worth. So yes, it is a lot to ask employees to welcome a decrease in pay, but there are ways to present it as an initiative vital to the health and future of everyone involved.

  • Be honest. Sell it as a means for everyone to prosper down the road.
  • Apply cuts fairly to everyone evenly across the board.
  • Communicate. Involve employees and remain transparent so they understand the big picture.
  • Offer other benefits such as extra time off or easy, inexpensive group outings to show employees they are appreciated for their willingness to contribute to the success of the company over their own interests first.
  • Reward the effort. If/when there is success, spread the wealth.

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