Should I be concerned about a voluntary pay cut scheme (Due to COVID-19)?

Question

My employer is a medium sized IT/SaaS business (around 2-300 employees global), where I've been employed for < 2 years.

All employees are currently working from home due to the COVID-19 pandemic.

I've been asked, along with the rest of the employees, to take a voluntary pay reduction in response to the Coronavirus pandemic and the impact it will have on the business. The reduction is pitched at a percentage over a fixed threshold, with an increased percentage for higher earners. If agreed, the scheme is set to operate for a fixed period (a few months) followed by a review (and possibily another request for extension). The scheme is voluntary, although I believe that that has more to do with the legal situation regarding employment contracts/salary here in the UK.

The announcement was made with the justification of "community" and "pitching in together" to avoid redundancies across the business.

There's been no mention of the UK government's support scheme / salary support, e.g. furloughed workers or reducing hours worked.

My intuition says that what I'm being asked is to work the same for less compensation, which is unreasonable. My feelings are that the company is supposed to plan to survive bad situations - and the compensation I receive was not negotiated to be contingent on the performance of the business.

I'm concerned that this might communicate something deeper about the company's financial status, in which case I should be looking to move sooner, rather than later. Talking to a few of my peers, though, It seems like the general consensus is that this is a bad situation for everyone and I might be being more cynical than is required.

Am I overreacting here? What are my options?

Answer 1

It's never a good sign - and I think you're correct to be concerned, but it doesn't necessarily reflect particularly on your current employer. Many companies the world over are struggling or facing an uncertain future right now and it doesn't necessarily mean that they were in a precarious position before this all started.

..to avoid redundancies across the business.

This is perhaps the concerning area, and it may seem on the surface to be highly dubious. After all, avoiding redundancies was precisely the purpose of the government scheme to pay 80% wages to furloughed staff. Although if there is still work there to be done (and perhaps penalties to avoid in contractual delivery arrangements to customers), I can see how it would be preferable to keep the company operating even if it means still paying out the majority of the wage to the staff. Furloughed employees can't do any work for the company; if they do that government assistance goes away.

The scheme is voluntary, although I believe that that has more to do with the legal situation regarding employment contracts/salary here in the UK.

Correct - they can't unilaterally reduce your pay if you're working the same hours and doing the same role.

My intuition says that what I'm being asked is to work the same for less compensation, which is unreasonable.

And you aren't wrong - it essentially is unreasonable, I would perhaps consider this avenue - it may be possible to negotiate some provision in the agreement regarding back-pay or extra time off or similar for when the situation improves.

My feelings are that the company is supposed to plan to survive bad situations

To a certain extent this is true - but companies can rarely afford to operate at the sort of margins where they can have a large contingency fund, especially if they are operating in a competitive sector. Add in that the current crisis is essentially unprecedented in the modern era and who could have planned for this?

and the compensation I receive was not negotiated to be contingent on the performance of the business.

You're being a touch naive here - it may not have been a direct performance-related-pay situation but any business when calculating how much they can afford to pay someone is going to be factoring in the expected performance of the business, not necessarily just the person's own impact on that. Barring startups and the like where they have investment and are expected to operate at a loss for a period of time, the basic keystone is that money coming in to the business is what pays for the wages. If there's no (or significantly less) income then at some point it simply gets untenable to pay wages, so in some ways yes, your wages are absolutely contingent on the performance of the business!

in which case I should be looking to move sooner, rather than later

Looking at it purely from a you-centric point of view, do you honestly think you're going to find things much better out there on the job market in the near future? Remember this isn't just your company that's affected - many companies are going to be putting hiring freezes into place or be more restrictive in what salary they can pay right now. And as the old saying goes "last to be hired - first to be fired", you stand a very real risk of going from frying pan to fire.

What are my options?

I think as I discussed above it's worth exploring a conversation about getting the agreement to include some recompense for the time spent at a reduced rate. It shows a willingness to accommodate the company during a difficult time but still conveys that you think your work is worth your current rate. Equally if the situation improves and they aren't living up to their end of the bargain, at that point you'll have a healthier job market to jump in to.

Otherwise you could refuse to volunteer - depending on how others react and how the economic situation at large pans out, this may mean that you carry on as before and nothing is lost. I'm not sure I'd like the potential stigma of being the only person who wouldn't pitch in, that sort of thing sticks in management memories.

Answer 2

If the company genuinely has too many employees and not enough work, then they should accept you working reduced hours for reduced pay. Then when the work picks up, you go back to full-time.

If the company's response is there is still the same amount of work to be done, then employees' jobs are not redundant - and it sounds like the problem is cash flow or profitability.

As you have worked there for less than 2 years, you probably don't have full employment protection or statutory redundancy rights, so it would then become your judgement call whether you will still have a job (and for how long) if you do not accept reduced pay (with or without reduced hours).

Answer 3

Those of us with gray hair have likely had this happen on several occasions.

It would not be appropriate for us to advise you on whether or not to accept these new terms. This is part of your personal career management.

However, if you do choose to accept this, I would recommend you have:

• A clear list of criteria that determined why this request is necessary (financials, workload, etc.)
• Visibility from upper management on that data. Even if it's a monthly report.
• A clear "threshold" of these criteria that will trigger a return to normal pay rates.

Answer 4

Usually when they ask for volunteers, it means they are simply asking but later on some folks might be voluntold.

As for the whole noble task, I must caution that you must see the benefits of it. At the end of the day, the company is protecting itself. By letting them profit, you get nothing in return. Now that sounds a bit selfish, but the company is asking you to donate without any sort of gain for you other than "recognition."

As it stands now the work employment opportunities are volatile. If you can continue to work, I wouldn't worry about it. I would also caution that you shouldn't read too much into it. Continue to work, and as the situation changes, adjust yourself. Remember to always outweigh the benefits to yourself in regard to career and company because the vice versa will not happen.

Answer 5

From experience (in a german startup), something to consider:

Company asked for reduced work with reduced pay for a few months, that was okay for me. Later the company still tanked, leaving me unemployed.

I immediately found something new, but if not, I would have gotten less unemployment money from the state because they look at the income in the last 12 months and half of it was the reduced pay.

So it depends on a lot of factors.

Answer 6

My intuition says that what I'm being asked is to work the same for less compensation, which is unreasonable.

If you find it unreasonable then your only option is to reject it, and take your chances that they don't let you go outright.

My feelings are that the company is supposed to plan to survive bad situations - and the compensation I receive was not negotiated to be contingent on the performance of the business.

There isn't a company on the planet that was prepared for this specific scenario and the measures that we've all been asked to undertake. I'd hardly see your company as negligent in this regard and I personally wouldn't find fault with them.

This is a wholly unprecedented and unexpected scenario. You can "pitch in" as the company is requesting or you can reject them and see how your luck plays out. If it were me, I personally wouldn't risk it unless I had a confirmed job offer, contract, and start date with some other company.

Answer 7

I have a different take on this.

Am I overreacting here?

Yes.

My feelings are that the company is supposed to plan to survive bad situations

That is true to an extent. However, this is a extraordinarily bad situation - one of the worst in living memory. The Secretary General of the UN has said that the Covid-19 pandemic is the greatest test since World War Two. A company that kept sufficient reserves to weather this storm would have to be one of the largest companies in the world (look at Apple, for example) or it would be so uncompetitive that it would not have survived normal times. People are concerned that we could be on the way to an economic depression.

The announcement was made with the justification of "community" and "pitching in together" to avoid redundancies across the business.

No company wants to be seen to jettison employees the second things get tough, especially when things are still relatively early in the epidemic (here in the UK, at least). Consumers and potential employees can have long memories.

I've been employed for < 2 years

But note that here in the UK it is easier to fire staff with less than 2 years' employment. You are one of the people being included in this "community" - you will be much cheaper to make redundant than someone who's been there 5 years.

My intuition says that what I'm being asked is to work the same for less compensation, which is unreasonable

You shouldn't need your intuition for this: yes, you are being asked to work the same for less compensation. That would be unreasonable if nothing external had changed, but (as I said above) a lot has changed significantly externally to your company, and not in a way that could be reasonably predicted or planned for.

the compensation I receive was not negotiated to be contingent on the performance of the business

To a certain extent it was: if the business goes bankrupt, they will not be able to pay your salary at all, and you might not get the full amount for the last month you worked (I have been there in the past).

Businesses are going bankrupt.

If your business depends on income from other companies, then they are most likely cancelling or at least pausing projects that would have given income to your company. Reducing the salary bill could be the difference between your company being around in six months when (hopefully) things begin to return to normal, and not being around.

I should be looking to move sooner, rather than later

I would be surprised if many companies are taking people on right now. There will not be the range of options there would have been two months ago.

What are my options?

There are no good options. That is not the fault of your company, or of you. Unless you are a very recent hire, you should have formed a view of the tone of the leadership of your company - if you think they can broadly be trusted, I would take their words at face value - this is happening everywhere.

Despite all of that, of course, things could get worse, but there's not much else you can do right now. If it gets worse for your current company, it would most likely be getting worse for any company you move to, and you would be a very recent hire in a new job.

Answer 8

To play devils advocate you may want to consider what is happening with regards to the business projects and on-going work and how that is factored in to this decision.

There might be a genuine business reason for reducing pay but keeping the hours.

1. Ongoing commitments

Your business might get £X revenue for maintaining software Y. If the company furloughs staff (which requires them not work at all) or reduces hours, will they have enough staff to maintain service agreements on contract Y and if not will there be a drop in revenue? Would this drop in revenue mean permanent layoff's? What happens if company Z closes becuase of Covid-19 and stops using software Y, suddenly there has been a greater drop in revenue. How do they cover this?

2. Cancelled future income

Development contract Z which hadn't yet been finalized, has now been cancelled. This project was supposed to bring in £x in future revenue to fund the development team, however with this gone and the development team potentially still needed, for on-going work or patching, the money for their salary is going to be needed from somewhere. Yes they could be furloughed but that comes back to my first point of when does furloughing or reduced hours actually impact profits too much to keep the business viable.

If future income has been risked then do they just lay off staff intended for that project? If some of those staff a long standing staff then they might have generous severance/redundancy packages that require paying from somewhere.

3. Who goes on furlough?

They could furlough staff but who gets chosen and for what reason? Will this causes issues as people identified as non critical as asked to furlough but refuse, do you then attempt to furlough someone more critical to save money but risk further issues with them gone? Can the teams actually function correctly with furloughed staff?

If future/existing income has been impacted then a company always has to make a choice on where the loss in income is going to end-up, usually a reduction in the workforce where the revenue was generated from or was intended to be spent on.

Conclusion

They may have made a series of calculations and come up with the answer that a 80% pay cut for everyone means no redundancies for X months to get through this period. At which point they hope the market takes an upswing and business goes back to normal. They don't have to fire anyone during a period where it's going to be really hard to ex-staff to pick up another job.

In your personal circumstance its worth remembering that in the UK standard redundancy pay is only for those who have worked more than 2 years and as such you are not eligible for it. You are then at a higher chance of being selected for redundancy as your outgoing pay would be 0 (unless your contract states otherwise).

Answer 9

I've had something like this happen to me at a former employer. External events put the company (and that entire industry) in a very bad position. Most of the time, a company would lay off a portion of its staff in order to stay afloat. Our management saw that the situation was external and temporary in nature, and that there was no reason for the company to bounce right back to normal after the situation resolved itself. Instead of layoffs (which can take a long time to recover from), my company instituted a temporary 10% pay cut for all employees. The overall impact to the bottom line was the same, we were still able to meet all commitments during that time period, it was easy to un-do later, and everybody kept their jobs and benefits. The only difference is yours is voluntary, but that's likely because you're in the UK and I'm not.

On the surface, I wouldn't be concerned. This shows that your employer is looking for ways to avoid laying off employees, which is a good thing. I recommend that you consider participating if you can afford it. The thought of doing the same work for less pay is disheartening, but the alternatives aren't much better. If not enough people participate, the company will likely resort to layoffs. If you keep your job you'll be getting paid the same, but your workload has increased because there will be fewer people to do the work. Your overall pay/work ratio ends up roughly the same. The other alternative is that the company keeps workloads constant by cancelling projects or dropping customers. This preserves your personal situation in the short term but hinders you long-term because less company revenue means fewer raises, slower growth, longer time period to recover, etc. Both of these alternatives take a lot longer to recover from once the external condition has resolved.

The big caveat here is that the entire situation is caused by an unrelated external factor that the company has zero control over or ability to predict, and that has wide-spread impact across more than just your company or locale. If the problem was specific to your company, was caused by management mistakes or poor company performance, etc, then expecting the employees to help mitigate the impact is unreasonable. When the problem is something that kicked the entire global economy in the teeth, asking everyone to pitch in to help shouldn't be seen as a suspicious move.

Should you decide to participate, I highly recommend that you make multiple copies of anything the company sends about this program. My company had some upper management changes during this time and the new management tried to change some things after the fact and avoid having to bump everyone's pay back up to the original levels. It all got sorted out, but not having a copy of the original details would have made it exceedingly difficult to do.

Answer 10

On a purely emotional and risk-assessing level, yes, you should be concerned. It is a clear sign that your company is anticipating financial losses or at least a much reduced cash flow in the near future. However, this is separate from the question whether you should agree to these terms.

I would suggest an alternative not yet mentioned in other answers: you can make a counteroffer for deferred payment. That is, ask for an agreement where the company owes you the full amount of your salary, but they pay you the amount suggested in their offer now, and the remaining amount a year from when it would have been due.

For the company, this is not as attractive as completely reducing the pay, but it is still something they should be able to afford. During good times, a company like yours is likely to have more work to get done than the resources (mostly person-hours) to do it. I suppose they want you to work the same hours because, even if there will be less customer contracts coming in (due to customers shutting down business or being unable to afford your services) there will still be work to be done either for existing customers who will pay later, or for enhancing the infrastructure you use to offer services. So when the crisis is over, they will hopefully again be in the state of their revenue being limited by the amount of work they can deliver, as opposed by a demand-side limit. And due to the work you do now, they will get more revenue in that future time period as opposed to a situation in which you don't work and they don't have outstanding payments or an improved infrastructure. So, assuming the company survives, they should be able to afford it easily. And if it doesn't survive, they won't care to have one more debt on the insolvency list.

For you it is still a loss in the sense of both having less available income right now (and uncertain times are when you need most liquidity), and in the sense of both risking that you never get your promised money (if the company goes into insolvency) and losses due to inflation. But at least, if everything goes well and the company survives, you get paid as per your original contract - and in the uncertain times, you are still "pitching in" in the sense of sharing some of the risk your company is facing, and not contributing to a possible insolvency. If presented properly, this should convincingly counteract the moral judgement of you as a kind of "freerider" who wants full personal benefits while the company is fighting for survival.

It is of course up to you if you decide to make such a counteroffer. While they can afford to take it, they will be disinclined to do so, so if your negotiation position is weak (and they know that you are not going to easily find another employment right now), they will say no. So the decision is based on your ability to present the argument in terms which appear reasonable and non-egoistic to the other side, as well as knowledge of how important is your presence to the company long-term, and knowledge of how the person you talk to is likely to react (even if you present a reasonable argument, a narcissist boss could perceive it as a personal attack, while on the plus side, other bosses could give you mental brownie points for assertiveness even if they reject your suggestion).

Answer 11

Depends on the amount of reduction.

Would the suggestion bring you below the threshold for furlough i.e. would their reduction bring you to below £30,000 if so you and possibly the company would be better invoking the furlough for as many non-essential staff if they think they are going to have money issues rather than ask everyone for a paycut.

In terms of you rejecting all this and leaving then it's going to be difficult depending on if there are jobs left for you at the end of all this. No-one know what the future holds and far into the future the sector you work in could be decimated.

I would initially look at suggesting the furlough first rather than paycuts. Maybe paycuts for the higher earners i.e. senior management. If they aren't willing to listen then what are your options? Refuse I guess. You did say this was optional. If it was me and they said no furlough and refusal to listen to me I'd refuse to listen to them and say I'm not taking any optional paycut.