time has arrived for flex wages
Elsewhere, I've tried to make the case for flex wages. In good times, it's a harder argument to make (though I would make it, because times change). In bad times--or the about-to-be bad times economists assert we're going to have--the case for flex wages, or, more to the point, pay cuts instead of layoffs, becomes more persuasive.
To summarize what I've written elsewhere: a pay cut of even 50% is preferable to a pink slip, or: fifty percent of a salary is better than zero percent.
I've heard the argument that were Sun (or any firm) to cut salaries, it would lose workers to competitors. Please tell me: who is hiring these days? I acknowledge that stars will always be able to move. However, most people, however fully competent, are not stars. For those of us rooted in the firmament, pay cuts make sense.
That would be great if folks could live off of 50% of their salaries. Most cant. At best case they would use it as a stop gap until they found another job.
Overall, while somewhat nice for the employees, this would not be very good for the company who is trying to keep their better employees. Say you have a team of 20. You cut everybodys pay by 50%. The key folks will probably be able to jump ship to a better paying environment. The not so good folks will be stuck since they were lucky to have a job to start with. After a while, you get the dead sea effect and you are left with the bottom half. So now you can bring wages back up to where they were before since enough folks have left that the total cost for the team is reduced. If you did layoffs, you could be selective about who was still with the company. With the 50% pay cut method, you as a company lose control and chances are you will not like what you are left with.
I have worked for startups who made 'deals' with their employees on a voluntary basis. Take a massive pay cut for the next month or so till the funding comes through. In return, you get all of your back pay plus X% bonus (or stock). This worked because a) it was voluntary b) it was timeboxed and c) there was a reward for taking a risk and staying with the company.
And as for who is hiring, it depends on where you are. In the denver market, comcast is on a hiring spree right now.
Posted by john on October 09, 2008 at 09:16 AM PDT #
It's kind of an interesting exercize in game theory. A 50 percent pay cut might be unrealistically high to expect someone to accept, but say you offered a group of people a choice -- either you all take 25 percent pay cuts, or a quarter of you get laid off. What's the best choice? My guess is that nearly everyone will take a 1 in 4 chance of getting fired rather than 100 percent chance of getting a pay cut. Whether or not that's good for the long-term health of the organization -- is the team really better off having lost so many people? -- is another question.
Posted by jfruh on October 09, 2008 at 10:46 AM PDT #