By Caroline M.L. Potter
Recession. Slowdown. Correction. Whatever you want to call it, the economy is not quite as vibrant as it was in the past few years, and the effects of this are far-reaching, impacting almost every job sector. Layoffs abound as do hiring freezes, and pay cuts are making headlines.
Automotive executives are being asked to downsize their salaries as are financial workers. The 238,000 employees of California's executive branch had to take twice-monthly mandatory furloughs. Even celebs, such as talk-show host Jay Leno and New York Yankee Andy Pettitte, accepted lower salaries for their talent. You may soon be asked by your employer to follow suit.
Read on to learn more about how pay cuts may vary, and how they could affect you.
1. Pay Cuts
Pay cuts have been in the headlines, but not as much as other cost-cutting tactics. Says John A. Challenger, CEO of outplacement consulting firm Challenger, Gray & Christmas, "Real pay cuts for people are something companies are very cautious about doing. We're seeing some and it is a sign of the times."
If your boss does come to you, there may not be much you can do about it. Workplace expert Liz Ryan reveals, "The idea of negotiating a pay cut is tough now." Salary negotiations expert Jack Chapman agrees, adding, "It usually isn't presented as, 'This is what we're doing, and we need your approval.'"
Your employer, like many companies, may cease contributing to your 401k or other retirement plan. Challenger reveals, "We'll see pressure on some of the soft benefits, maybe less tuition reimbursement." Don't be shocked if your monthly contributions for medical benefits rise as well. Expect, also, to be asked to do more with less.
Ryan, a former human resources executive, states, "Depending on the type of business, travel can be the second biggest expense for many companies. Your boss may ask you to rely more heavily on videoconferencing." And, naturally, you can bid adieu to Friday bagels and coffee on the company's dime.
3. Bonuses and Raises
"We're seeing a lot of actions from companies to cut variable pay -- bonuses will be hit hard if the economy remains in this state through the end of the year," Challenger says.
Chapman concurs. "Most of the executive positions I've helped clients negotiate in the last 10 years had a base salary and a bonus tied to performance," he says. "People get used to counting on that money, but a bonus is discretionary and the first place a company would look to cut." He adds, "I think it's not a big leap to assume you're not going to get a bonus this year."
If you don't receive your bonus, you may want to start to look for a new employer. Ryan points out, "When companies don't pay bonuses they had committed to, it means all bets are off. They've lost all credibility." Challenger warns that other salary increases are at risk as well. "Merit raises and cost-of-living raises are going to be held to a minimum," he says.
4. Reduced Hours and Mandatory Furloughs
Many government employees are being asked or forced to work fewer hours or take unpaid vacations. You may not have a choice about doing this, but Chapman counsels, "time [off] is the one benefit you have. This might be a blessing in disguise. It can give you some needed R&R or an opportunity to pursue other work on the side."
Check with your employer to be sure you're able to take on additional projects outside of work. "If there's any concern as to whether there's a conflict of interest to do work outside, it might be good to get it in writing that it's OK to pursue that," he says.
What You Can Do:
- Be proactive. Look for ways to help your employer cut back without cutting jobs or pay.
- Speak with an accountant to see how you can maximize the benefits and paycheck you have, perhaps by increasing your contributions to "cafeteria" plans or raising deductibles.
- Try to adjust your reduced hours so they suit you better.
- Consider working for a smaller company. You may experience more transparency and have ample warning if things are going south.
- Use mandatory time off to look for another job.
- Don't live off your bonus.
- Trust your instincts.