Your boss just told you and your colleagues that you’re all getting 30% pay cuts.
What do you do? How do you react?
First of all, look at it from your company’s perspective. This was probably the better of two shitty choices.
If the company needs to slash costs in a recessionary environment it has few options and little time to make those choices. Often, an impending debt payment puts a hard deadline on the need for cash. Missing a debt repayment risks the life of the entire company.
A pay cut doesn’t mean you’re getting screwed.
Often, one of the easiest ways to free up cash is to cut salary expenses. To do this, a company can either cut headcount or reduce pay per worker.
While a 30% pay cut feels like you’re getting the shaft, it is actually a sign your boss is trying to save jobs.
It might work, it might not. But either way, keeping your job during the Covid-19 recession should be top priority. A steady paycheque keeps you solvent and it buys you time to build up emergency savings. It also buys you time to build skills, network and prepare for the possibility of eventual unemployment.
Longer job tenure means a bigger severance if laid off.
Another big upside to keeping your job is you retain tenure. A longer tenure means more severance if you are eventually laid off.
In good times, a 30% pay cut would send you immediately searching for another job. But in bad times, that would be a risky strategy. This is not the time to let pride drive decisions. Unless you’re independently wealthy, you still need an income to pay your bills and feed your family.
Quitting for a new job is risky because it means your tenure resets to zero. A company can have the best of intentions when hiring, but changing circumstances could force them into cutting staff (or salaries). Who gets cut first? The new guy – because it costs the company nothing in severance. A recession is not the time to walk away from job tenure.
A 30% paycut is usually temporary.
As the economy eventually normalizes, salaries should be returned to their previous level. If this doesn’t happen, then consider your options. But it could take 2 or more years until the labour market is strong enough to give labour a fighting chance. Until then, it’s a buyers’ market.
Job seekers today are competing against millions of other job seekers for jobs that don’t exist. This is not a labour market you voluntarily enter. So accept that 30% paycut, as painful as it is, because the alternative could be a lot worse.