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I work in a Canadian office for a large US-based company that has several offices throughout the US and Canada.

Senior management in the US has already been forced to take cuts, and Canadian managers are being encouraged to (but can't be forced to) accept a pay cut. This week, our employer is asking everyone else (R&D, finance, HR), to take a 20% pay cut. It's heavily implied that if we don't take this cut, we'll be dismissed, served our severance packages, and then we're out of a job with just a few months of severance to hold us over until we're reliant on un-employment insurance. My opinion is that it's better to stay employed as long as possible, so long as this doesn't impact my severance package (8 months of salary at my "current rate").

Question: when I'm served this request (a few colleagues have already received it, with a request for a temporary 20% pay cut), what questions should I ask or what amendments/terms should I demand prior to accepting the pay cut? Based on advice so far, I should:

  • Ask if my severance package of 8 months of salary is paid out at my normal rate, or the reduced rate? If it's a 20% pay cut, my 8 months of severance becomes 6.4 months.
  • Ask if the pay cuts will appear as deductions on my bi-weekly pay checks, or if my actual base salary itself will change (apparently this has tax implications?).
  • Ask if, in the case the company continues to do poorly, will the cut pay be paid back to me (i.e. if I work for 2 months at 80% of my normal salary, and am laid off anyway, will the 20% of two months' pay be repaid to me)?
  • Will any outstanding stock bonuses or RSUs be paid out to me if I'm laid off? After all, I wasn't given a chance to work long enough to cash them out (I think in some states/countries it has to be paid out in full).
  • I have several hundred dollars of personal possessions at the office, but it's closed unless there's a critical need. Can I demand my possessions be couriered to my apartment at no cost to myself, in return for me mailing back my company laptop and iPad?

What else should I consider before signing such an agreement?

Thank you, and stay safe!

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  • If the company fails altogether, what severance (if any) are you likely to get? How long is it likely to take you to find another job at comparable pay, if you started looking today? What confidence do you have that your current employer will last that long? Pay cuts under threat of termination and the associated attrition of the most employable staff are usually only efforts to postpone the inevitable. Oct 24, 2023 at 21:15

3 Answers 3

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You and your colleagues together should discuss this with your management. There should be an agreement that everyone’s regular salary is unchanged, but temporarily the company pays 20% less - to everyone, or everyone above some minimum wage. And that severance pay, etc. would be based on the original salary.

The obvious reason would be that you want to help to keep the company running but you don’t want to lose out if it doesn’t.

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I'd be very cautious about taking a 20% pay cut for several reasons.

1)If they're in such dire straits they need to do this, this may not be the last round of cuts. What happens in 6 months if they need to let people go anyway, or they ask for another paycut? You may end up with the paycut and still being fired.

2)Massive layoffs/paycuts always cause a brain drain. When this happens and people start looking for an escape hatch, it's the best people who will find one first. The skill quality of the people left will be lower (on average). This can cause a spiral if you aren't already set up for one as is.

3)What makes you think they'll ever reverse it? If they see you're willing to stick around for 20% less, why not just make that permanent?

4)8 months is a lot of severance. Do you think it will take you longer than that to find a job? If not, its to your financial benefit to take the severance (absent an overriding reason like substantial equity that won't be matched elsewhere). This of course varies based on your career path and field.

I generally take events like that as a signal to jump ship, even if you make it through layoffs. But it does come down to what set of risks you're more comfortable with.

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  • You should also check the tax implications in your country. Severance might not count for tax purposes like salary, so $1000 severance might be more than $1000 in salary. Or less, or the same, depends on your tax laws. Do you keep the severance if you get a job next week? Could you find a job with less pay and less stress, that is financially fine because of the severance?
    – gnasher729
    Oct 25, 2023 at 21:44
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I understand the promises, but, imho, it may be preparation for cost shaving for massive layoffs If not everyone received that offer, meaning not everyone is scheduled for the next step, what ether that may be.

In this particular situation, the way OP outlined it, not taking a pay cut and start looking for a new job, just in case, would be my suggestion.

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