Rick Smith: Cut My Pay! Should I Stay?

In the last week alone, I have heard of three separate cases where workers were told that they must accept a material reduction to their pay if they wanted to keep their jobs. I have lived through several economic cycles, but this aggressive employer approach seems new. In one case, an individual was asked to accept a whopping 30% cut in total compensation. In another, a friend indicated rumors that his Fortune 100 employer is poised to seek an across the board 5% reduction in base pay. It is uncertain if these cases represent a growing trend, but this is clearly a situation that few in the job market have ever planned for.

What should you do if this happens to you? While every situation is as unique as the individual, here is a quick checklist of points to think through.


Face Your Finances – Duh!, right? Everyone is already cutting back. But do you know precisely how much you are spending right now, and on what? Do you know exactly how long your savings will last? Can you really survive on a lower income, and if so, what immediate sacrifices will be necessary? Have you discussed all this in detail with your spouse? The time has come to get real about your finances, before the elephant in the room sits on your head.

Suck It Up! This stinks! How can they possibly ask this of me?! Especially now, when I am working harder than ever! OK, now that you got that out of your system, back to reality. Times are tough now for employees and employers alike. Employers are not likely reducing compensation because they can (due to a slow job market), but because they must! It’s not personal. Blow off your emotional steam, then make forward-looking decisions based on well thought out rational choices.

Don’t Quit Immediately – While taking a pay cut may be a bitter pill to swallow, in a down market this choice is almost always preferable to looking for a new job while unemployed. 1) Every week you work extends your financial runway, 2) It is materially more difficult to get a new job if you don’t currently have one (lack of employment always triggers uncertainty about why you really left your job), 3) You can multi-task an aggressive job search while still employed, and 4) A 50-hour-a-week job search can quickly turn depressing, and a fatalistic attitude is completely transparent (and unattractive) to prospective employers.

Pay Yourself Forward– This is the most critical question to consider: If I stay, regardless of what they pay me, will I be more valuable in the market a year from now than today? (Will I gain broad new experiences, and/or develop interesting and influential new relationships?). In the working world, compensation is a trailing indicator of performance and achievement. You are paid today for value you have demonstrated yesterday. Therefore, if you can put aside your current compensation woes and focus on gaining the experiences and knowledge that will make you more valuable in the future, somewhere down the road this value will most certainly show up in your paycheck.

Have you been asked to accept a pay cut, or know of someone else who has? What did you do in this situation?

Read more: Jobs, Unemployment, Job Market, Personal Finance, Business News

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