Facing Salary Cuts and Role Changes: How Should HR Communicate This to Employees?

Dear Sir,

I am working as an HR Officer. Due to a downfall in business, the management has changed the designation and restructured (decreased) all our salaries.

What is the correct process? Should I reissue all appointment letters or just send a letter stating the change in designation and salary?

Please advise.

Your post is silent about whether the application of the austerity measure is only in respect of supervisory and managerial personnel or in respect of all in the organization, including workmen. I hope it would not be so in the case of workmen for obvious reasons. When the decision itself seems to be basically wrong from the perspective of the contract of employment, how could you expect the implementation part to be right so as to correct the wrong? The designation of an employee may apparently be just a name of the post held, but deep down it connotes the responsibilities attached to it. Is not the mere change in designation together with the corresponding downward restructuring of salaries at the instance of the Management a unilateral modification, and of course, a violation, of the contract of employment? Salary, being the monetary consideration for the accomplishment of the responsibilities, can be a subject matter of renegotiation and restructuring with mutual consent in turbulent times beyond control. It may be unconventional, but conventionality is a matter of commonly agreed practice. Hence, my suggestion would be that of a temporary reduction in the current salaries befitting the present business reverses without a change of existing designations.

Senior management-grade staff designation/ functional role can be decreased to the lowest level, and salary reduction can be made as per the designation/role. I kindly request seniors to advise.

Talk to all employees about the problem. Enlist their cooperation. I do hope the management is only doing this as a temporary measure to overcome present problems. Or is it a problem that is perpetual? Reduce salaries, but there is no point in downgrading appointments. Calling a senior manager a manager overnight is quite humiliating indeed. One needs to take the human angle into account. If someone wants to quit, give them a free exit.

Handling Salary Reductions and Designation Changes During a Business Downturn

Good times and bad times are part of any business, enterprise, or factory. If the business demands it due to persistent losses, salaries can be reduced after taking employees into confidence and providing proper notice to all concerned.

There is no necessity to change the designation of the employees or issue any new appointment orders. Changing designations or assigning lower designations can humiliate or demotivate employees, unlike reducing salaries for valid reasons to tide over a temporary crisis. Tomorrow, the situation may change and improve, and normalcy will be restored. Therefore, attempting to demote and later promote can lead to a lot of heartburn for HR. It is safer to leave the designation untouched, as suggested by seniors.

Let us hope that the temporary crisis will be over, and management will restore employees' salaries once the situation improves.

Regards, Neyimkhan

I doubt, is it legal? Under which law/act can we reduce the wages/salary of all staff?

Dear Seniors, please let us know.

Reduction in Designations: A Punitive Measure?

Reduction in designations is often seen as a punishment and should be avoided at all costs. If a General Manager (GM) is demoted to a mere Manager, why should they still perform the GM's tasks?

If you must implement changes, consider reducing salaries by curtailing allowances rather than cutting basic pay. A better approach would be to retain current salaries instead of reducing them. This retention can be released when the company's performance improves. Any reduction or retention should occur only after obtaining the concurrence of the affected employees.

Evaluating the Need for Salary Reduction or Retention

The fundamental question that requires serious consideration is whether it is worthwhile to reduce or retain salaries at all. What amount will you save every month by doing this? Will it make a significant difference? How will it affect the employees? Can you not identify the real problems the company is facing and address those issues appropriately? A competent internal auditor can uncover several revenue leakages that can be addressed, potentially saving an amount equal to or greater than what would be saved by reducing salaries.

Regards

Your post lacks the information needed to provide you with better advice. You have mentioned that due to a downturn in business, management changed the designation and salary. It seems like your management did not discuss the downturn with the employees and directly decided on the change. This is unprofessional and shows that your company does not value its human resources, especially during tough times.

Impact of Designation Change

Secondly, what difference will it make by changing the designation? An employee is designated to a particular position based on their experience and skills, not just because of their salary package. The management's decision to change designation and reduce salary without consulting the employees is the wrong process.

Corrective Actions

Kindly correct the actual process, and the rest will automatically be taken care of. All you have to do is regain your employees' confidence and issue a new letter changing the employment terms.

Regards,
Soniya

All seniors' feedback and suggestions are valuable. Please consider taking them to your management. However, I can see that a decision has already been made as you did not inquire about whether it is right or wrong. You only asked how to formally communicate with employees. You do not need to issue a fresh appointment letter. Instead, you can provide a change in designation letter and an updated salary letter. Please ensure that the basic salary is not reduced to comply with statutory regulations. I hope this helps.

Regards,
Hema

www.jedhru.com

I hope you are tracking the responses of the members regarding your posting. The reason you mentioned for this step by the management is "due to a downfall in business."

What does this have to do with any change of designation in the first place? Revision of salary—yes, but what is the company achieving by changing the designations? And why should they?

As AS Bhat mentioned, designation is more often viewed as a punishment in relation to performance than any other issue. The moment you touch the designations, you are giving scope to the employees (levels don't matter here) to think that there's something else going on and begin to look out rather than lend a helping hand to the management—unless that is the prime motive of the management.

And, as other members pointed out, take the employees into confidence on the why of the decision, even for salary cuts. Be clear on the duration as well, at least approximately, before you begin this exercise.

In such situations, if you take a "take-it-or-leave-it" stand, then don't be surprised if the employees make their own decisions based on their understanding of what is being done by the management. The very same management may then start to say "the employees ditched the company"—I have seen such situations before.

Regards, TS