Pay Cuts Become More Common in Pandemic Downturn

growing number of companies in sectors hit by the coronavirus pandemic are turning to pay cuts instead of layoffs to reduce their labor costs, hoping to preserve their workforces for a fast recovery. 

Employment attorneys and HR practitioners said that approach makes sense in these uncertain times, but they cautioned that cutting pay has to be done right to avoid generating resentment, lowering productivity and eventually driving away the best employees.

Businesses that emerge in the best shape from a period of pay reductions will probably have these things in common:

• They are consistent and fair; employees doing the same work get the same cuts, and top executives sacrifice more.
• They are open about business financials and the company's strategy for recovery.
• They have two-way conversations with employees and listen to workers' ideas.
• They restore original pay as soon as it becomes sustainable.

Also, it doesn't hurt if top leaders set an example by cutting their own pay first, as a number of airline and hotel executives have done, said Tom McMullen, senior client partner in the Chicago office of Korn Ferry, an organizational consulting firm.

"In terms of engagement and morale, you'll be in a better place if leaders are out front, treating employees like adults and also saying, 'We'll come out of this and here's how,' " he said. "Organizations that can do that will have better-engaged folks."