Should I volunteer for a pay cut?

Question

I work for a very small software shop (2 employees) and was brought in when they were awarded a large project 2 years back. At that time I was offered a pay that is higher than the industry as the company was badly in need of hiring people due to a tight deadline. During the duration of the project, the CEO has brought up several times (in a joking way) that I am paid higher than the industry standard.

The project is winding up but the company has started to get attention from other clients in the industry. The CEO wants to hire more people and since the product is relatively stable, he wants to get developers at a much lower rate.

I would love to continue working here as the company has a lot of potential, but I am starting to think that once more people are hired he'll let me go due to my high pay. Not sure if it makes a difference, but the CEO is Korean and am not sure how they operate/think.

Would it make sense for me to voluntarily take a pay cut now? Should I wait it out and make a move later?

Answer 1

The reality is that newcomers will be paid more than you. That’s how it goes. Volunteering for a pay cut for no reason whatsoever is about the most ridiculous thing you could ever do. Don’t do it. Don’t mention it. Don’t even think about it.

If they let you go for your high pay, you go somewhere else for a higher pay.

Adding DarkCygnus’ suggestion: DONT DO IT!

Reading your comment: You seem to be your own worst enemy. If you suggest a pay cut, that shows you don’t think you’re worth the pay, and it’s like you tattooed “mug” on your forehead. That’s how bad it is. It makes it actually less likely that you keep your job, because your boss was told by the person who should know best - you - that you aren’t worth your salary.

A much better strategy is asking for a raise. It shows you think you’re worth it. And you might actually get it.

BTW Do you have any idea how much it costs to hire someone? Any idea how long it takes and how much it costs to bring a replacement up to speed? Further reading is available here.

Answer 2

This doesn't really seem to have any benefits to you. The only situation where this makes sense is if you both:

• Expect to get laid off explicitly because of your higher pay
• Like the job enough you'd want to keep it even at the reduced pay

That being said, a few reasons why it doesn't make sense to take a pay cut:

• Hiring is expensive in nearly all cases, it's likely your company would lose more money to hire a cheaper replacement (who then has to be onboarded, etc)
• You are very likely highly valuable to your current company given your experience with them from the beginning
  • This is a tangible value worth money
• Your salary difference is likely negligible compared to the cost of hiring a new engineer. Unless you are making more than 2x market rate, taking a pay cut to market rate will not let your company hire a new employee meaningfully

Last, and personally, unless I was taking a specific change in responsibilities, I'd just find a different job if I was facing a pay cut like this. What does it say about your employer if they want to reduce your pay for some reason? It says they don't respect you. I'd rather work for someone who was excited to pay me because of the value I bring; not think they should pay me less.

So don't volunteer for it yourself.

Answer 3

Nothing like that about Koreans that I know of.

It's much more likely that if he wants cheaper developers you will be promoted into a lead position possibly with a small raise or none if he goes the penny pinching route at all.

This would be a fairly normal progression for someone who has proven themselves and new staff are onboarding, rather than getting rid of them.

Answer 4

You don't gain anything by voluntarily asking for a pay cut. You will set a bad precedence for yourself within the company. In the future, any time there are financial hardships within the company, the CEO will remember that you voluntarily took a pay cut and may ask you to do so again. Also, you don't know if the CEO wants to hire new developers at industry standard or lower. If they are hired at lower than industry standard you would still be getting paid too much and risk being let go ( assuming you asked to cut your pay to that of industry standard ).

Answer 5

the CEO has brought up several times (in a joking way) that I am paid higher than the industry standard.

Sounds more like a compliment than a threat.
Maybe he just says it to keep you from asking for a big raise now that the first project is successful?

No real way to tell based on the information you have provided.

Do your homework to figure out what "market rate" is in your area.
Do some networking in case your instincts are correct and he does plan to let you go (which I doubt). The added benefit is that it will help you sleep better.

Industry standard is (essentially) an average.
Some people will be paid below it, some above - if you and one other person pulled off a major project it sounds like you should be paid above average.

Answer 6

Industry standard salaries tend to go up in this business, so what might happen is that you don't get a pay raise until it's caught up with you. Since you aren't going to be paid more than standard market rate indefinitely, I'd be very surprised if you get let go for making too much.

If you talked the company into a pay cut to hit industry standard, you would shortly have to try talking the company into raises to keep you at standard.

Of course, if the company gets into financial problems, you may get a pay cut, but that's not really your responsibility.

Answer 7

If your salary is in line with salaries in your area, your expertise and the quality of work you do, then don't volunteer for a pay cut. Even if this is a good company to work for now, if the owner only cares about cutting expenses and hiring lower-paid employees, it'll turn into a not-so-good company in a fairly short time.

If you think that's a real possibility to happen, start looking for a new position that pays you for your skills and expertise. The company will not be loyal to you if - in the management's mind - you're an unjustified expense and they'll let you go without blinking.

If you really trust the owner, you can try having a conversation with him about your position but don't expect guarantees.

Answer 8

Late answer, but this does not have to be binary.

First thing, you are in a very small team and have brought the tool to the point where it can be sold to multiple clients. You have created huge value. Your expertise in that product is such that you will be instrumental in realising that value.

You are therefore worth more than ever to the company. You deserve a significant pay rise.

Secondly, the company will no doubt have a cashflow problem at this stage in its lifecycle and cannot reward you with base pay.

It can however provide either equity or alternatively a bonus tied to actually making the dales to new clients.

Answer 9

The first gut instinct is, never volunteer a pay cut as this validates the assumption (of your boss) that you are overpaid; as you can attest from all the other answers.

The truth is it is more expensive for him (not only in money, but more importantly in time) to hire someone to replace you since that person will be demanding much higher pay since the company is now no longer a two-person shop. Then it will take some significant time to be as productive as you are - which is natural at even the most disciplined software houses.

So even at your alleged higher pay, you are less expensive than hiring a replacement. This is just the nature of business and holds true for all but the most rudimentary positions.

You are also not aware of the financials of the company. Clearly there is good news in terms of money since the company is hiring more - and hiring is one of the most expensive parts of a business; so its not that you are not affordable.

If you feel that the company is headed towards an unsustainable model, there may be another way to approach this problem. Instead of volunteering for a pay cut, change the way you are paid, since you are a senior person in this small company. You may want to consider reducing your salary, but compensating for it by getting a share of the business as you are critical to the success of the product.

Or simply move.

Either approach is better than getting paid less than what you are worth.

Answer 10

Going by what you have written, you have not provided a single reason to assume why he would let you go other than that he could hire new people for less money you are on. You need to consider other aspects first, such as if you are appreciated and valued at your work place. Do you constantly get good feedback? Do you get along with people? Is there a single reason to assume that anyone is not satisfied with your performance?

Now, if one of those were true, you could, theoretically, assume that maybe your boss might be willing to let you go. But if the company is not satisfied with your work and they are hiring new people, why should they retain you even after a pay cut?

However, even if your boss were to consider letting you go, a voluntary pay cut would be the wrong way to go about it. Look at it from this perspective: once you demonstrate you are willing to take a substantial pay cut, how do you think you can approach asking for a raise in the future? You have already established that you don't believe your work is worth the money you were previously on. How would you argue that now you would deserve to be suddenly paid more again?

So if you genuinely have reason to believe you are about to be let go since you paid too much and not justifying that investment, your best bet would be to consider looking for a new job. Deciding to stay with your current job after offering a volunatry pay cut is going to be really, really bad for your future career.

Answer 11

Back in the day I worked for a small consulting firm that grew. It grew and it grew and it grew until it had two branches in neighboring cities, and was starting to expand to a third city. Then, unknown to me, the two owners began to bicker. One of the owners wanted Out. The other owner wanted to keep the business going, but couldn't buy out the first owner without breaking the business. So, they decided to sell it. The owner who wanted out would take the money and go - the other would take the money and stay with the buyer, to keep the business going.

All we knew on the "employee" side of the ledger was that we were told that "the company needs to put our salary structure on a more industry-standard basis" or some such nonsense, and those of us who were hourly and getting paid a percentage of our (relatively high) billable rate were asked to convert to a 'normal' salary, for much less money. I looked at the deal, realized I'd been on one contract for over 8 years with no end in sight, and quietly didn't take them up on their magnanimous offer. Eventually the company was sold to Big Consulting Co., who required us to convert to salary - but the salary at the "new" company was significantly higher than what I was offered earlier by the company I'd helped to make successful (in my small way, by driving 50 miles to the client and fifty miles home).

Moral of the story: money is money. Get as much as you can, and don't take less. If your boss has forgotten what you've done to help, maybe it's time to move along.

P.S. Eventually Big Consulting Co. went belly up and got bought by PrivateEquityFirmCo. Me? I'd already left for greener and closer-to-home pastures. No more 100-miles-per-day for this ol' boy - now I'm 7 minutes from garage to office. I make a little less, but I also have less stress. And when they were still of an age to be picked up after school I had time to pick my kids up after school, go to soccer games, and etc. Now they're mostly grown and off to college, but I'm not goin' anywhere. Just remember - nothing lasts forever - so get yours while you can. :-)

Answer 12

Don't volunteer for a pay cut.

Dust off the resume - including the new project experience you have gained the last two years - and start networking with other developers - even start looking for other jobs.

That way, if you get an involuntary pay cut, you're ready to move on. If you are let go, you're ready to move on. If you find a better job, you're ready to move on.

Answer 13

The only scenario I can imagine where the voluntarily pay cut is appropriate is the case where you are in the top management, directly interested in the company's financial status and the paycut can turn the trend from red numbers to black ones or when you expect all the employees' pays to be cut temporarily.

In this case you show the employees how you value the company and that you believe the trend can be overcome. On the other hand you show them indirectly that you expect same gesture for your inferiors as well.

Even this highly hypothetical scenario must be well thought through though and may work only if you have no superior at all or only one and you trust them indefinitely. If you do expect your inferiors to cut as well be sure to cut their salaries by lower in order of magnitude(s) than yours and rise them before you will be about to get payrise yourself.

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And for yourself: Estimate how much do you earn them a month and how much the work you have done is earning them a month. Substract from this number your sallary and benefits. Try to compare those numbers to the "industry standard".

I think you will get numbers that will suggest a payrise rather than paycut :)

Maybe they are jokingly complimenting your job well done. Maybe they are trying to win The Most Valuable Staff for the Leas Money. If they know your actual value to them, they will neither fire you neither let you go easily. If they don't, do not hesitate to find another company with good potential, or set your own up.