Reduce pay, save jobs…but lose morale

In the Businessweek article, Does it pay to reduce pay? The interviewer poses the question, “In this brutal recession, more companies are doing it. It avoids layoffs, but some fear that morale and productivity will suffer.”

You will definitely lose morale and the talented employees when the economy turns around if you do not do the following:

Explain in redundant detail the reasons why

Do not be vague. Lack to detail as to reasons why leads to speculation, rumors, and adds to the view that management is taking it out on employees. Talk about how we are in this together, talk about what else has been cut first, and that this is a last resort because we don’t want to do layoffs. Communicate early and often about it. Don’t spring it on people with very little notice.

Give WIIFMs (What’s in it for me)

Explain the reasons why the pay cuts are good for them. Hard to believe there could be any reasons why a pay cut could benefit employees. Not everyone will respond to the same reasons, so talk about as many benefits as possible. Get some of your marketing people to help with the communications. They know how to explain benefits to customers. Some benefits could be…a pay cut means keeping your job, a pay cut comes with fewer hours and more flexible work schedules to spend more time with family, or the company could increase training opportunities while pay cuts are in effect. Talk in terms of your employees not the company.

Set milestones and a planned deadline

You must tell your people when their old salaries will be restored…even of you do not know due to the uncertain economy. Put a plan in place with milestones and dates and publish these openly, so employees can see the milestone, track progress, and participate in helping to achieve them. If you do not meet milestone and salaries cannot be restored, people will understand why, and they will respect that a plan was made and people worked hard to achieve it. People understand that not every goal can be reached.

Keeping the date or circumstances for restoring salaries a secret or opened-ended is deadly, and you will lose your people’s respect, their loyalty, and you will lose them to the competition when the economy turns around.

Not just for pay cuts

These principles above do not just apply these principles about to any management scenario. By explaining reasons why in great detail, talking in terms of employees and setting specific and clear expectations, you will be a better leader resulting in more loyalty from your people and higher performance.