How to Reduce Wages Instead of Layoffs

Layoffs may be difficult on both employees and management.

Employee layoffs may negatively affect a business, lowering consumer confidence, causing a downward trend in stock prices or possibly impacting credit and other financial relationships. Although corporate layoffs may be an unavoidable situation, considering alternatives such as wage reduction may offer a better long-term option. These reductions can be as simple as making changes to executive compensation but may require changes to wages paid to other levels of the corporate structure. Any plan to reduce wages as an alternative to layoffs should be carefully reviewed and considered prior to implementation.

Things You'll Need

• Company financial records
• Financial projections

Instructions

1. 

   Company financial projections may hold the answer.

   Analyze company financial records and reports to establish current compensation paid to all levels of the corporate structure. This analysis can help with identification of departments or areas where cuts in wages can offset wages for larger numbers of lower-paid employees. For example, reducing wages paid to a few executives, upper management or other high-level corporate employees may provide funds to pay a number of hourly employees. This redirection of funds may eliminate the need for layoffs.

2. 

   Some older employees may not have considered early retirement.

   Examine company records to determine if any employees are close to mandatory retirement age or are eligible for early retirement. Although this may not result in an immediate reduction of wages, it may offer a plan of action to reduce wages over a period of time. Offering this option to employees may also result in voluntary early retirement by some employees rather than forced retirement. These options may offer a way to cut wages by reducing the workforce without layoffs.

3. 

   Schedule changes may help reduce wages.

   Offer reduced work schedules or part-time options as an alternative to employee layoffs. This option may reduce the overall wage expense without lowering an employee's per-hour pay rate. This provides for an automatic pay increase when a return to regular work schedules is possible.

4. 

   Employees may opt for more benefits rather than layoffs.

   Offer employees the option of taking a cut in pay rather than risk job layoffs. Employees may understand the need to cut costs in an effort to preserve the business for long-term employment. Offering additional, low-cost benefits such as reduced-cost meals in a corporate cafeteria, free parking, additional paid holidays or stock ownership options may make this option more attractive to employees.

Tips & Warnings

• Keep an open line of communications with employees.

• Look for benefits to offset wage reduction.

• Reduce or eliminate overtime hours to reduce wage expenses.

• Don't rush into any major policy or corporate changes.

References

• "Bloomberg Businessweek": Does It Pay to Reduce Pay?
• Tough Money Love: Alternatives to Layoffs in Recession — Why Aren't They Used?
• "Time Magazine": When Companies Opt for Pay Cuts Instead of Layoffs