Should you consider reductions in pay as an alternative to reductions in force?

In most cases, the purpose of a reduction in force is not to reduce hours worked, but to reduce expenses. If the payroll can be reduced without laying anyone off, the result may be more satisfactory in terms of employee morale. It may also save management recruiting and training costs when business returns to normal.

Work-sharing is defined as a reduction in the number of hours each employee works (see ¶24,020 ), while each employee's pay per hour remains the same. In contrast, a reduction in pay means each employee continues to work his or her normal hours, but receives less pay per hour.

Is it possible to reduce pay across the board and expect to maintain employee morale? A reduction in pay is, from the employee's point of view, demoralizing. It represents a setback on the job and a lower living standard at home. Some employees may look beyond the reduction to resumption of their normal pay, but for most the answer to the rhetorical question, Don't they understand this is necessary? will be no-many will not understand.

Checklist: Designing a reduction in pay alternative to reduction in force

Is reducing pay a viable alternative to layoff? That is very much an individual business decision, but in general the answer is yes, it not only can be a viable alternative but one a number of companies have resorted to in recent years. When deciding whether a reduction in pay will work for your company, consider the following:

• Employees at all levels should be included in the reduction more or less equally.

• Management should also be included in the reduction. That, more than any other single step, will make the reduction seem necessary to the employees.

• There should be no change in job designations unless some employees are actually changing jobs. An employee's job title is important in terms of status and it can be demoralizing to insist on relabeling employees because they have moved down a step in compensation.

• A reduction in pay is a negative event, but it does not have to be discussed or announced in negative terms. A spirit of cooperation can be encouraged by asking the employees to accept a reduction, rather than coldly announcing that a reduction will take place.

• Line supervisors and managers should be kept informed. If management leaves an information void, uncertainty and rumor will fill it. The effect on morale and productivity may be great.

• Employees should be told whether the pay cuts are temporary or permanent. If temporary, inform employees how and when the former pay levels will be restored. If the pay cuts are permanent, market surveys and hiring rates must be adjusted proportionately and personnel files must be documented to correctly reflect the reason for the pay cut.