How Would You Handle Pay Cuts During a Recession? Insights from an HR Case Study

Hello, can someone help me with an HR case study? I have prepared a case study on Recession.

Compensation Management Practices at ABC

The case discusses the compensation management practices at ABC based on the EVA model. With the implementation of Economic Value Added (EVA)-based compensation, the salary of employees comprised two parts: fixed and variable. The variable part of the salary was determined after considering business unit EVA, corporate EVA, and individual performance EVA.

During the fourth quarter of the financial year (FY) 2007-2008, ABC announced its plans to slash 1.5 percent of the variable component of employee salaries since its EVA targets for the third quarter of FY 2007-2008 were not met.

The company faced severe criticism and was accused of not being transparent with respect to EVA calculation. However, some analysts felt that the pay cuts were a result of the macroeconomic challenges that Indian companies were facing.

Question

What do you think, how could the situation have been managed better if you had been the HR manager at ABC during this time?

Regards,
Taru

Dear taru2001,

You have not provided the full details of the salary of ABC employees. Notwithstanding, the company should have been more transparent on the issue of where exactly they have cut 1.5%. There should have been no cut in individual performance EVA as it would have affected morale. Steps affecting morale should only be taken in the most extreme contingencies. From your brief, it appears that the company has not pink-slipped any employee; that, in itself, would be a plus for the company. Many were not that fortunate! Cuts in manpower during a recession were commonplace. Not diverting from the topic, more transparency could have been exercised.

Regards