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Pay cuts force employees to make adjustments


A friend has laid off her babysitter/housekeeper. She just couldn't afford the help when she and her husband both endured pay cuts. It means she often picks her kids up from after-school care, tackles cooking, cleaning and homework and then heads to her computer.

As my friend realizes, it's better to get a pay cut than a pink slip. Still, if your paycheck suddenly is smaller it requires a whole new way of managing work and life.

And so it is with the recession hitting most workers in our wallets. We are adjusting to doing our existing workload, and more, for less money. We want to believe that the salary freezes, dwindling bonuses, commissions and tips and harsh pay cuts are temporary. But at the moment, the economy shows no sign that wages will rise anytime soon.

These wage cuts have snowballed across virtually every industry, resetting paychecks nationwide. More than half of the 200 companies surveyed in May by outplacement consultant Challenger, Gray & Christmas said they had instituted salary cuts and freezes in the past 12 months to stay afloat amid the economic slump. And a new Watson Wyatt survey indicates that some that have not already frozen or reduced salaries are considering these actions.

"Employees know the market is tough," says Jorge Roca, a recruiter with Spherion Corp. in Miami. "They have to adjust their lifestyle." Roca says even hiring employers are offering less pay when filling jobs.

Making adjustments that help make ends meet

Tiffany Levin, a married mother of two, was working in sales for a training firm in Miami when her employer announced across-the-board pay cuts. With her kids in private school, Levin says, "I just couldn't afford the pay cut."

Levin decided to quit and now works as a recruiter, earning a competitive salary. But she worries that her new employer may cut her paycheck, too, before the year is out.

The consequences for families are significant. For some, a husband's pay cut has sent mom back into the work force or forced dad to take a second job. Many have cut their Internet service, cable and dry cleaning or given up one of the family cars.

Some workers are negotiating a corresponding cut in hours to give them time to pick up side work.

Paula Franco, a Spherion branch manager in Miami, says her phones are ringing with people calling about temporary jobs, looking to boost income through part-time, evening or weekend work. "They're saying that the cost of living has gone up and their paychecks have not. They need to make extra money."

In some cases, pay cuts have wiped out years of raises. In others they jolted professionals who had come to expect six-figure incomes as standard. In the legal industry, associates are responding to slashed pay with a mixture of shock and indignation, says Fort Lauderdale legal recruiter Joe Ankus. "They're saying, 'This can't be happening to me; I was Law Review.' " He adds, "While you can complain to a point, you really can't vote with your feet in a recession."

It's more than money: Morale also suffers

The situation is challenging for employers, too. Management is finding that even those pay cuts aimed at avoiding layoffs can hurt morale. When Alan Becker announced to lawyers at his Hollywood firm that he would reduce compensation across the board, some attorneys left and competitors publicly enjoyed the backlash. Becker says it took hands-on management and honest communication to keep morale up and resignations to a minimum.

He says the majority of his lawyers stayed, "dug in and worked harder."

As a result, he says, the firm reinstated original salaries three months later and has avoided layoffs. Now, he says, other firms are initiating pay cuts, too, and some are unable to avoid layoffs.

Clearly, employee psyche is undergoing an adjustment: Just a year ago, an annual 3 percent raise might have been considered stingy. Today, with pay raises rare, employees are more motivated by public praise and flexible schedules.

Financially, there are signs of hope for workers down the road. Seven in 10 companies expect to reverse a salary freeze in the next year, according to a June Watson Wyatt survey. However, they don't expect pay and benefits to be restored to levels seen before the downturn.

Josh Wilson, compensation practice leader at Watson Wyatt, says eventually companies that choose not to reverse the cuts and freezes could see loyalty erode. "For the short term, people are willing to give up pay to preserve jobs, but anytime employees feel slighted, they're not as motivated."

Motivating employees after reality sinks in

Stephen Balzac, president of 7 Steps Ahead, organizational development firm: "Avoid making the paycheck the goal. It's important for a business to create a powerful vision and clearly articulate it. The more vivid the vision and the more employees are excited by it, the more tolerant they'll be of pay cuts."

Brad Karsh, workplace expert with JobBound: "A manager can keep an employee engaged by trumpeting her successes and making her more visible within the organization. All a manager has to do is send an e-mail to her (employee) congratulating her on a job well done and then increase the visibility of the praise by CC'ing a number of higher-ups. Total time elapsed: less than a minute. Total cost: free. Value to the recognized employee: priceless."

Betty Sullivan, president of Architectural Ceramics: "Lots of verbal and fun appreciation of staff instead of gifts or anything that costs money."

Linda Konstan, owner of LMK Associates, Sensible Human Resources Consulting: "My clients are keeping their employees motivated during freezes and wage cuts by telling them the truth and opening the books to all staff."

Sabra Smith, chief operating officer of Veritas Employer Services: "Employees who feel that their employer is empathetic, truly cares about them and appreciates their efforts will be loyal, motivated and productive. A timely, heartfelt and genuine 'thank you' is always a hit with staff and it does not cost a penny."

MJ Ryan, an executive coach and author of AdaptAbility: How to Survive Change You Didn't Ask For: "Motivate employees with chances to use their talents even more: When companies have to do more with less, task/talent alignment is more crucial than ever. It's highly rewarding to be able to do what you are great at or take on a new task you're interested in learning."

Pay cuts force employees to make adjustments 07/25/09 [Last modified: Saturday, July 25, 2009 4:30am]
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