When It’s Right To Take A Pay Cut
This is an article “When It’s Right To Take A Pay Cut” by Marc Primo
The title might not be appealing to many, but it might be essential to some, especially during these difficult times due to the pandemic. If your boss opens up about the possibility of lowering your pay, carefully consider things first before you take drastic measures that you can't reverse in the future. Sometimes, taking a pay cut is not a wrong move, and burning bridges is never the right option.
A significant number of Americans have already lost their jobs due to the health crisis. With small and medium businesses struggling, furloughing or laying off employees seem like a logical consequence. That means it might be best for individuals who get pay cuts to count their blessings as they aren't the ones with the short end of the stick, after all.
Consider the current numbers
During the pandemic's peak, an estimated 9.6 million able-bodied workers in the US lost their jobs in a year-on-year comparative study between the first quarter of 2019 and 2020. While the unemployment rate is slowly waning this year, many still struggle with their jobs – mainly due to reduced salaries that would keep their companies afloat.
The numbers speak for themselves. As an alternative to employee layoffs, salary reductions grew in the country, with 38% of 340 US companies surveyed saying they resorted to pay cuts because of the pandemic. Human resources professionals say it's the most reasonable option in preserving the workforce and attaining a rebound. As long as employers remain consistent and fair, which means pay cuts should go all the way up the executive level, things would be easier to accept for employees.
For most companies in the survey, transparency on company financials, open communication, recovery plans, and the promise of restored pay grades after the pandemic are the key ingredients. The ones most affected by the pandemic are industries that reduced employee salaries, especially the airline and hospitality sectors. Seventy percent of executives, 52% of middle management, and 41% of those in supervisory roles took the lead in taking the reduced salary route.
For the rank and file, processing the pros and cons is essential during these uncertain times. While a pay cut may be acceptable for others, those who feed 'hand to mouth', or are currently deep in debt, may need to look for other sources of income altogether. However, that might mean sacrificing job security and may involve irreversible risks.
Before you consider leaving a job due to a cut in your salary, consider these three factors that can help you make a more intelligent decision for your future career.
Consider your job security
The COVID-19 health crisis disrupted the country's employment rates. More Generation Zers and Millennials have led the pack of those who have quit their jobs to look for other opportunities. That's not surprising at all since the younger ones have more leverage to switch from job to job without worrying too much about career security.
However, for the older members of Generation X, sticking to a job they have long had and accepting a pay cut might be a better choice, especially during these times of uncertainty. One study reported that 55% of Americans are looking for other jobs, with only 33% of that number being professionals aged 57-75.
What older employees need to do here is to know when taking a step backward is the only way to move forward. Unless they have ample savings to build their own business or are in for a more promising job and career, taking a pay cut seems like the most reasonable thing to do right now.
Consider your health
Stress remains a by-word among today's employees, with concerns about job security and health being two of the most prevalent. More employees are growing restless from working at home, which somehow sparked an exodus among employees who ultimately decided to leave their jobs.
If you are vulnerable healthwise right now, taking a slight pay cut might be better than risking your current job during a very shaky economy. Remember that what always matters is how well you can physically take the demands of a job, so you don't end up getting sick and shelling out on medical expenses. Plus, if your current job still has healthcare plans on the table, there's no reason why you should look for another one that's high-paying but will let you earn such certain benefits only after a probationary period.
Consider being patient
Everybody knows it's not easy to do business these days, much more for the hospitality and leisure industries, where nearly 50% of employees lost their jobs as early as April 2020. Most company CEOs quickly mitigated the disruption, with 79% of Russell 3000 companies cutting their pay.
After more than a year and a half into the pandemic, nearly 650 companies announced top-level pay cuts despite an unexpected stock market rebound last year. Despite these CEOs' efforts, one-third of those working still got a lower paycheck than they used to because of the pandemic.
With more 'for hire' signs disappearing, taking a pay cut today and being patient until your company can get back on its feet may seem like a huge sacrifice. The good thing is that some employers like General Motors are trying to make things easier by promising a retroactive salary with interest. Some have even become more lenient with their employees who take side jobs by cutting down on work hours aside from the pay cut.
Right now, forecasts for recovery from economists remain bleak and may take a while longer. The main thing to remember is that these challenges are temporary and that helping your company get through the storm may mean helping yourself and your family as well. However, this is not to say you shouldn't evaluate your worth and if you're getting what's enough. Try to study the current market and keep tabs on your company's financials to know precisely where you are and how much you should be earning.
These days, being patient pays off, considering that the federal government can also provide partial unemployment benefits for employees with significantly reduced work hours. As long as you can cut back on your spending and do your best to weather the storm with your current company, a silver lining may be on the horizon as the world begins to turn the corner on the pandemic.