Two Most Common Reasons for a Salary Reduction
Employers have many reasons why they might need to reduce the amount of money you receive in your paycheck. These are the two most common reasons why an employer might do a salary reduction.
Your Organization Is Experiencing Economic Challenges
An organization that is experiencing economic challenges may ask you to take a salary reduction. An economic downturn, a weather event, or another unpredictable happening such as a public health crisis has affected the company’s sales, profitability, or its ability to succeed, or even operate, as a business. The company needs to save money but the employer has decided that they cannot operate successfully without the current number of employees. Thus, employee layoffs, employee furloughs, or any solution that will affect their ability to serve customers and create the product are not viable choices for the business. In a salary reduction situation, employees are generally not happy with the pay cut. But, depending on the economic circumstances, they may appreciate keeping their jobs, and especially, their benefits.
Salary Reduction Sad Story
In a small manufacturing company the CEO explained at a company meeting that to avoid filing for bankruptcy, he was asking all employees to take a 10% pay cut. People grumbled, but most were committed to their company and keeping their jobs. The employees went back to work. and while they didn’t like the idea of a pay reduction, they believed they were all in it together. They thought that for their company (and jobs) to remain viable, they needed to take the salary reduction. Then, a gossipy employee in accounting informed her friends that the across the board cut did not, in fact, mean everyone. Executives’ pay was exempted from the cut. As you can imagine, as with any bad news, everyone in the company heard the gossip within 24 hours. The employees requested a meeting with the CEO. Unfortunately, he made matters worse. He informed all of his employees that he had exempted the executives’ pay because he couldn’t afford to lose them. Employee morale never recovered. Salary reduction for exempt employees is more complicated. See more about how to do legal pay cuts.
Your Job or Position Changes Substantially
A second reason that an employer may offer a salary reduction is when your job changes substantially, either by choice or by a demotion. The employer may have decided that your work is not meeting standards but they think you have a lot to contribute—in a different job. You may have decided that you want a job with less responsibility while you take care of a sick, elderly parent, or raise your children. For employee morale and a harmonious workplace, employers need to maintain a modicum of salary fairness among people who hold the same job. If you made more in the job you are leaving, you’re likely to find yourself with a salary reduction.
Salary Reduction by Personal Choice
In a third scenario, say that you are job searching. You receive several job offers that are a salary reduction from what you believe you are qualified to make. That is, your job offer rate of pay is not comparable to what others in the job market with your skills and experience are making. You can make the personal decision to accept the job offer even if it does not meet your expectations. But, this is a choice that you make on your own for whatever reasons you use to justify your decision. A salary reduction, whether imposed or due to the choices you are making is not a pleasant event. Anything that affects your economic viability and your future is scary.
