Facing a Pay Cut in a Small IT Firm: How Should I Balance Fixed and Variable Pay?

Dear All,

As mentioned earlier, I work for a 10Cr turnover IT company. My boss owns the company and has decided on a cutback in my pay. He has asked me to come up with a plan involving variable pay and fixed pay modes due to the global recession. Please advise me on what percentage I can reduce. I understand that this decision depends on my financial commitments, but I need guidance on how to structure it.

Before I conclude, my company never announces profits, you know... :-) Additionally, there has been a wide range of pay cuts across the company, varying from 10% to 50%.

Please share your thoughts and help me with this situation.

Regards,

Sherry

Sherry,

You could consider implementing Variable Pay based on performance targets, which could be paid out at the end of every quarter or half-yearly. This approach aims to reduce the fixed components in the compensation structure.

Hi Suja,

However, I never had any performance targets for my role; it was never discussed. Though a part of my CTC is based on performance. It's been a year now, and I am supposed to get my variable pay and an appraisal, etc., but in the meantime, this issue cropped up.

Net net - no performance targets, never had KRAs.

Regards,
Haripriya

Hi Sherry,

I am really surprised to see that, being a part of management, your boss made a pay cut of 10-50%, which is totally unacceptable. When planning the restructuring of the salary, you should have conducted a market survey to understand the impact it had on your industry due to the global recession.

You need to speak to Finance and Operations about the ongoing projects, contract value, and the duration of the contracts. If you see that your contract is valid for 2 more years, then I don't understand why a pay cut has to be implemented.

However, if ongoing projects are stopped or going to be stopped, in that condition, you need to propose a salary structure that is minimum for all the employees, ensuring they can maintain a normal living condition. You can't force employees to bear a heavy burden. A 50% salary cut will completely demoralize employee productivity.

You need to explore some sort of insurance coverage that includes covering employees' salaries to be paid in case of a global crisis, where both management and employees contribute a part of the premium.

Saji

Dear Saji,

I always appreciated your prompt responses which supported most of the members.

Coming to my situation - it's a 150-member company. The couple owns the company. Except for PF, there are no benefits provided to the employees. There is no structure followed; in fact, a 50% cut is also something I got to know while I was preparing the pay slips. Being an HR professional, I was never involved in these discussions. I was not even informed about the pay cuts that happened for certain employees. Initiations, negotiations, decisions, etc., happened between the couple and the respective employee. When I tried to ask, they said it's not required for me to know, hence I didn't have a choice.

It's a 10-year-old company, and not even a single policy is in place - be it leave, travel, exit, etc. Ten hours might have strived to bring this in place, but sorry, it was never approved. They are not willing to spend at least Rs. 2000/- a month for R&R.

Regarding the survey, etc., I have done that and presented it to the team, which they never bothered to look at or suggest something. People with a high salary bracket were asked to leave if they were not accepting the pay cut.

This is reality, and no offense to my company or management. Everyone has their own working style, but I need help in facing this.

Regards,
Sherry

Dear Sherry,

I am surprised to know that without policies and systems, you are managing 150 employees. You are facing a really tough situation. From your inputs, I could understand that your boss does not have trust or faith in you, which is very sad. Management should trust HR if they are interested in the real development of employees and the organization. Your boss may feel insecure that if policies and systems are put in place, they may lose their relevance, and line managers and HR may play an active role. That is the reason they are talking to employees directly, bypassing HR and line managers.

Make a self-introspection and find out if any improvements have to happen from your end to gain the confidence of your boss. You can also propose policies and systems but emphasize that your boss's authority is not eroded. They need to change their outlook. You can take this as a challenge and proceed with definite plans. A lot of mental calculation and planning is required.

Regarding your variables, I suggest keeping it at 10%, which is reasonable. But more than the percentage, the payment scheme for variables is important. Have a transparent scheme so that variables should not be seen as a pay cut.

Good luck.

Bhavan

If you choose variable pay, your productivity could increase, but people think that they are not getting value for their work. A pay cut is the worst idea in my view. Instead, they could consider job cuts. I may be rude, but think for a while. Keeping all the unsatisfied employees and decreasing your productivity, or sacking some of them and keeping others with a satisfied salary, but they work hard to retain their positions, will increase your productivity. However, I acknowledge that there are issues with job security that you can address once your company returns to normal.

Hi Sherry,

You can use the following ways to reduce the impact of a pay cut on your employees:

1) Identify critical and non-critical employees.
2) Also, make a list of employees who are not on the project.
3) Divide a part of the salary and name it as a performance-based incentive. According to the ratings of the team lead, give it in 40%, 60%, 80%, or 100% slab.

You can save a lot by this measure, and it will also be a performance improvement measure. Do not deduct anything from employee benefits as it will have a bad impact.

If the management is closed, you are not left with many options.

You should take the legal view. Basic and statutory benefits cannot be reduced. Next, look at the salary structure. This may include monthly reimbursement, annual LTA, performance bonuses, etc. You can focus on these areas.

Also, examine how the structure of employees whose salary has been reduced.

Nice. Now, I am happy that you will feel the pinch. It's good that HR managers, too, are getting pay cuts because they most of the time are only cutting the pay of other hardworking employees. 8-)8-)

Hi Sherry,

A pay cut is not something new in the current scenario. However, I feel sorry to say that your management's approach, rather than having confidence in HR function, does not seem convincing, which completely defeats the purpose of having someone in the HR department. Please understand I am not trying to discourage you; however, your first option should definitely be to take up the challenge to change your management's outlook. If that doesn't work, you may realize that you are in the wrong place.

Regarding your question about a pay cut, start with 10% and try not to dip below 15%. If it falls below that, you might want to explore a new opportunity.

Regards,
Sameer

Hi Sherry,

I reviewed your message. I would say that you are working for a critical organization that does not follow the normal regulations laid down by the GOI. I would suggest that you people should collectively form an organization and have a meeting with the PF/ESI inspector to protect your rights. The best way is to highlight this issue to the Labor Minister of your concerned state. Since I have been out of India for more than 10 years, I am not very familiar with the law.

But my advice is that it is not worth continuing in such an organization where you don't have professional growth, and they do not comply with government laws. Collectively, employees should teach the owner a good lesson by asking for your rights and going through the legal procedure.

Regards,
Saji

Dear K Ravi,

Are you here to make sarcastic remarks only? I have hardly seen you contributing with meaningful replies in this forum. No offense, but please try to add value to this forum.

To Sherry,

Try and suggest to your management the following:

1. Assuming that you are already not having off Saturdays, suggest to them to declare 5-day working. The cost of electricity, phone calls, transportation, etc. will be saved to a great extent.

2. Suggest to them to allow people to work from home twice a week. This will also save running costs.

3. Suggest to them to ask some identified people, after clearly explaining to them the reason, to look for jobs. Make a promise to take them back as soon as the situation improves. This will surely create trust in the employees for your management.

Good luck,

Prashant