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How to Tell Your Employees of a Coming Pay Reduction

Dear Cricket,

If I needed to inform employees of a medium-large company that a small reduction in pay is forthcoming due to declining revenues, how could I do this in an email that would be supportive and factual?

Bearer of Bad News

Dear Bearer of Bad News,

Such a tough message! For help with this one, I recommend you draw on ideas from Influencer and Crucial Conversations.

From Influencer:

  • Choice is the Foundation for Motivation. In your case, employees will not be the ones to decide what happens next. But could you find a way for them to be a part of the conversation and have some influence over how things play out?
  • Signal Commitment Through Sacrifice. How might leaders engage in some sort of sacrifice to show their commitment to this initiative?
  • Involve Opinion Leaders in Design and Feedback. Engage your opinion leaders in dialogue as early as possible while there’s still time to incorporate their feedback. If you wait until after your decisions have been finalized, it may be too late for them to feel they can have an impact on your thinking. Engage with them early and incorporate their ideas where you can.
  • Find Your Coyotes (i.e. Engage Your Critics). Rather than working around those who would resist you, run straight towards them. Invite concerns, listen without judgment, and involve them in coming up with ideas. This helps to engage their hearts and minds (and badly needed support).

From Crucial Conversations:

  • Decide How to Decide. In this oft-overlooked chapter from the original book, we learn that when people know ahead of time how decisions are going to be made, it makes it more likely that they will be able to respect the process and get comfortable with what’s ahead.
  • Safety is Key. Take great pains to share as much context as possible when framing the message to avoid any possible misunderstanding of intent. Remember, it’s not the content of the message that makes people feel defensive. People become defensive because of why they think you’re saying it. What do they perceive your intent to be? How might you signal your good intent?

Drawing upon these principles, I imagine a message like this:

“As you know, we continue to experience declining market conditions and face the impact of increased tariffs. As a result, we anticipate a significant decline in revenues this year. In order to ensure continued viability, we are facing some tough decisions as an organization. While other companies in our industry have chosen to engage in layoffs, we remain committed to protecting the jobs of our valued employees as our number one priority. Instead, we have opted to scale back in other ways. You’ve already heard that we have made the decision to eliminate all non-essential travel, halt construction on the new building and freeze all new hiring. Despite this aggressive push for cost-savings, we are still facing a need to cut additional costs.

“It has been proposed that if every employee were to receive a 1% reduction in pay, we will be able to guarantee no layoffs will be needed this year. This is not a decision to be made lightly as we recognize this would place a financial burden on all employees. In recognition of the sacrifice this would impose on our workforce, the executive team has chosen to absorb an even greater reduction in pay (2%) and remains committed to looking for additional cost-cutting ideas wherever possible to minimize impact on our employees.

“We need your help with this. This week, you can expect to be invited by the head of your department to share your ideas, big and small, for how we might (a) minimize impact to our workforce and (b) continue to drive efficiencies and cost-savings within each work group. Additionally, we invite you to share all questions and concerns with your manager by the end of the month. The executive team has promised to take into account all recommendations as we seek to finalize a formal announcement by the beginning of the next quarter.

“We recognize we may not be able to honor every request submitted, but we are committed to transparency in our communication during this tough time. We promise to explain why we make the decisions we are making and commit to helping manage any issues that come up. Our employees are important to us and we want to remain an employer of choice through these difficult times. Please help us find creative solutions to address our challenges. You matter to us. Your ideas matter to us.”

In the absence of steady, reliable information during times of stressful change, I’ve noticed that employees tend to tell ugly stories and catastrophize scenarios in an attempt to prepare themselves for the very worst. In my experience, people respond better to tough messages when they feel their leaders are dedicated to transparency, candor and respect. Communicate early and often. Anything you can do to signal a commitment to these principles should serve you well.

All the best,

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3 thoughts on “How to Tell Your Employees of a Coming Pay Reduction”

  1. John Shoucair

    Re paragraph 3, if the employees provide ideas to offset the pay cuts, would management consider cancelling the proposed pay cuts? Should that be included in the message? Otherwise, it seems like the financial burden is already a final choice.

  2. Frank

    While showing the executive level is taking a greater cut, what would make the workers feel better is that the executive level take a cut that is the same percentage of their salary over the average worker. For example if the CEO’s salary is 10 times the average worker, then his/her cut should be 10 times more than the average worker.

    Your example of a 2% vs 1% tells the workers the senior level doesn’t really care. Also the board members should not receive any compensation or benefits due to this cutback until the company is back on its feet. Certainly there should be no bonus or deferred retirement paid to senior executives during this period.

    Workers living paycheck to paycheck are tired of seeing leadership skate by with no real pinch to them. If the company is now at the stage of cutting salaries, workers have probably already seen increased costs to their benefits, and also the workers have a right to know just how bad the situation is, no sugarcoating it. Can the company survive and prosper or is this just a move to extend the inevitable.

    Gens X,Y & Z view work as a partnership, if you want a dedicated employee you had better buy in to this philosophy. Otherwise the worker will do some quick computer research and find out the real situation and plan accordingly. They are not going to work 35 years for the same company in the same job out of loyalty.

  3. Melanie Gao

    I love the idea of pulling from both Crucial Conversations and Influencer to prepare for this difficult conversation. Thank you Cricket for making those connections.

    Great to see you blogging! 🙂

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