Taking a pay cut - is it the right thing to do?

Star footballers are under pressure to volunteer to take significant pay cuts in light of the Covid-19 epidemic.
 

Chief Executives and Board Members are too. Not only may it be morally important at a time when a company's financial performance may be down (in the case of airlines) or booming (in the case of supermarkets), when dividends have been cut (in the case of listed institutions), government backed loans applied for (SMEs) or when staff are being furloughed (which applies to some 10% of all businesses according to the latest Treasury estimates).  But reputationally it may be important too. Some media outlets are already running a competitive league table of which CEOs and Chairman have made an all telling gesture or concession, with a special interest as ever in leaders in the financial services sector from high street to investment banks.

Yet the question of whether to take a pay cut may apply as much to other senior managers and executives from traders to accountancy firm partners, from HR to Marketing directors, from City firms to those running charities. 

The moral arguments may well still apply but where salaries are less stellar, there may be more for an individual to lose on a relative basis and thornier issues to weigh on a practical level.

Here are some of the considerations that spring to mind:

• Can you afford a cut in light of other family financial circumstances?
• Would the voluntary pay cut be for a temporary period only or is it open-ended? If the latter there may be ramifications if you are ultimately let go. You would doubtless want any  redundancy compensation to be on the basis of pre cut pay.
• Is the reduced pay to be reflected in adjusted hours of work?
• Is the pay cut to monthly salary only or would it impact other benefits such as pension contributions, holiday allowance and commission or bonus arrangements?
• What are the tax implications of the cut ? (And, of course, for high earners paying less tax will in fact mean reduced receipts to the Government which is the argument made on behalf of footballers).
• There is also a question of fairness, of how far others in the organisation are being asked to share the pain and whether the reduction levels are reasonable or in line with peer companies.
• Finally there is the issue of what is being done with the salary saved - how is this being rationalised? Is it to be put towards your employer's donation to the NHS or a.n.other worthy charity or is this a vital measure actually to help ensure the longer term viability of the business and to protect jobs for the many?  

Some of the City firms (eg HSBC) have pledged to halt redundancies during 2020, others have asked on an indiscriminate basis for voluntary pay cuts (eg Grant Thornton) in return for reduced hours, some in my experience are calling on senior managers to 'do the right thing' and take the strain compared to lesser paid support and other staff.

Each business and every professional will have a different set of factors to consider.  Sharing the pain has many dimensions to it and senior executives will need to weigh wider societal, organisational,  as well as personal factors in making their decision.

About the author

Corinne is an immensely experienced and highly respected employment lawyer. She advises both employers and senior executives in relation to the full spectrum of employment-related issues. She particularly enjoys dealing with equal opportunities-related issues in the workplace and acting in relation to (often hard-fought) whistleblowing claims.

Further information

If you would like any further information or advice about the issues explored in this blog, please contact Corinne Aldridge or another member of our employment team.