Some proponents of retrenchments believe that by instituting a company-wide pay cut, the pain or discomfort is felt by the entire workforce (from general workers, all the way up to the C-Suite level), which might be bad for morale and affect good-performers whom the company needs to attract and retain.
The impact of retrenchments is something significant that companies consider very carefully, as the additional workload could lead to a vicious cycle of more people resigning due to the deteriorating conditions and work-life balance. Hiring new staff later (during booming periods) would not completely replace the experience and familiarity lost with existing workers.
There are moral and legal responsibilities that companies owe to their employees (that they retrench) who have toiled for them over the months, years, and decades – and the opportunity cost should be taken into consideration as well.
Furthermore, due to retrenchment packages, letting staff go for financial reasons might actually cost more upfront. For example, in the recent round of 130 layoffs at Singapore Press Holdings, it was revealed that it would cost the company $8 million, or about $61,000 per staff member let go. Singapore Airlines (SIA) also recently announced it would slash 4,300 positions amid the COVID-19 pandemic, with retrenched staff to receive one month of pay for every year of service, capped at 25 months.
Misconceptions of Pay Cuts
While pay cuts seem justifiable and necessary for business survival to employers, they can cause employees to not understand the need for and reason behind such cost-saving measures, and how these are to be implemented against them. Furthermore, the differing pay cuts across employees can cause some employees to feel singled out and they can view the company as unfair. As pay is tied to the performance of an employee, pay cuts can cause employees to perceive that their work is not valued and this, in turn, can result in lowered productivity and reinforce their low morale. Hence, open and transparent communication is a must between the employers and the employees to increase understanding towards the rollout of such pay cuts.
Mitigation Strategies
There is a body that ensures fair and equitable wage cuts in Singapore – the National Wage Council. In March 2020, they published a guideline to advise businesses regarding Wage and Training recommendations amidst the ongoing Covid-19 pandemic. Under circumstances that a wage cut is necessary, some advice includes having the management lead by example, taking into account the other factors (such as overtime pay) that have already impacted overall pay if a cut in other components of the wage is being considered, as well as applying reduction of wages to both local and foreign employees fairly.
Opinions
Are pay cuts truly equitable?
"For companies that implemented pay cuts at more senior levels, some of the cash reduction was 'returned' in the form of increased stock grants," observes Kulapalee Tobing, Career Products Leader at Mercer Singapore. "
While companies might be more cautious in deferring short-term incentives as this essentially just defers costs, using long term incentive plans to 'compensate' employees for pay cuts is a smart way to lock in and retain key senior employees while still ensuring the company has sufficient cash flow to tide over this difficult period."
At present, some companies (such as SMEs) are still reserving stock options and profit-sharing for senior executives. But there is no reason why this cannot be extended to employees down the ranks: even if these forms of compensation do not immediately affect employees' disposable income, they can help to boost morale, acting as an indicator that firstly, the company will survive, and secondly, employees who stick with the organization during this period of difficulty will be rewarded when things improve.
References
Sim, K.H. (2020). Retrenching Some Staff VS Pay Cut For All: Pros and Cons Of Each Cost-Saving Method. Retrieved from https://dollarsandsense.sg/business/retrenching-some-staff-vs-pay-cut-for-all-pros-and-cons-each-cost-saving-method/
Modgil, S. (2020). Easing The Pinch Of Pay Cuts For Employees. Retrieved from https://www.peoplemattersglobal.com/article/compensation-benefits/easing-the-pinch-of-pay-cuts-for-employees-26711
Syed, N. (2020). Top Employee Complains On Cost-Cutting Measures revealed. Retrieved from https://www.hcamag.com/asia/news/general/top-employee-complaints-on-cost-cutting-measures-revealed/226358
Kang, M. (2020). Easing The Pinch Of Pay Cuts For Employees. Retrieved from https://www.peoplemattersglobal.com/article/compensation-benefits/easing-the-pinch-of-pay-cuts-for-employees-26711
National Wages Council 2020/2021 Guidelines (2021). Retrieved from https://www.mom.gov.sg/newsroom/press-releases/2020/0330-national-wages-council-2020-2021-guidelines
Comentários