Some companies using pay cuts to avoid layoffs
It was late and Martin A. Kits van Heyningen feared he was letting the team down at the company he cofounded, KVH Industries. Rather than lay off workers in response to the coronavirus pandemic, he had decided to cut salaries. And when he emailed a video explaining his decision at 3 a.m. last month, he was prepared for a barrage of complaints.
Instead, he woke to an outpouring of support from employees that left him elated.
“It was one of the hardest things I’ve done, but it turned out to be the best day of my life at work,” said Kits van Heyningen. “I was trying to keep their morale up. Instead, they kept my morale up.”
Even as American employers let tens of millions of workers go, some companies are choosing a different path. By instituting across-the-board salary reductions, especially at senior levels, they have avoided layoffs.
The ranks of those forgoing job cuts and furloughs include major employers such as HCA Healthcare, a hospital chain, and Aon, a
London-based global professional services firm with a regional headquarters in Chicago. Chemours, a specialty chemical maker in Wilmington, Del., cut pay by 30% for senior management and preserved jobs. Others that managed to avoid layoffs include smaller companies such as KVH, a maker of mobile connectivity and navigation systems that employs 600 globally and is based in Middletown, R.I.
The trend is a reversal of traditional management theory, which held that salaries were sacred and it was better to cut positions and dismiss a limited number of workers than to lower pay for everyone during downturns.
There is often a genuine desire to protect employees, but long-term financial interests are a major consideration as well, said Donald Delves, a compensation expert with Willis Towers Watson.
“A lot has happened in the last 10 years,” Delves said. “Companies learned the hard way that once you lay off a bunch of people, it’s expensive and timeconsuming to hire them back. Employees are not interchangeable.”
A recent study by The
Conference Board with Semler Brossy, an executive compensation research firm, and Esgauge, a data analytics firm, found that 537 public companies had cut pay of senior management since the pandemic began. The study did not specify whether any also cut jobs.
To be sure, if the crisis lasts longer than expected and the economy keeps shrinking, it is possible these salary reductions will not be enough to stave off job cuts. Other large corporations have cut salaries as well as jobs to stem coronavirus-related losses.
Still, the sudden nature of the economic threat has created a different mindset among some managers than existed during the last recession, Delves said. Some companies did try to cut pay rather than jobs back then, but the impulse seems more widespread now.
“What we’re seeing this time around is more of a sense of shared sacrifice and shared pain,” he added.
When the pandemic hit, HCA was increasing revenue and adding employees, said its chief executive, Sam Hazen, “and to put them out on the street because of some virus just wasn’t something I was going to do.”