3 Things to Consider When Negotiating a Pay Cut

One of our readers wants to know whether they have any negotiation power after being asked to take a pay cut to save your job as a result of the coronavirus pandemic. Here are three things to consider when negotiating a pay cut.

Q: A friend has been told by their company they’re all taking a pay cut – do they have any negotiation power?

A: Unfortunately, or fortunately, you may have been asked (required) to take a pay cut in order to save your job due to COVID.  If this is the case, your current options may be limited, however these are unprecedented times and each organization’s financial situation is different.  It may be beneficial to you to accept a pay cut in lieu of losing your job, but be sure to consider all of your options – do you want to continue working for your organization long term? Would your employer be willing to negotiate with you in six months to a year about a raise or bonus to help close the pay gap? Many employers have chosen to take the path of pay cuts instead of layoffs because in the past “Companies learned the hard way that once you lay off a bunch of people, it’s expensive and time-consuming to hire them back. Employees are not interchangeable.” This means you are a valuable asset to your organization and the organization does not want to lose you.  Times may be difficult today, but if you’re willing to weather the storm with them, it may pay off for you and your career in the long term.

If you’ve been asked to take a temporary pay cut be sure to consider the following:

  1. Get your proposed pay cut in writing.
    HR or leadership should at the very least send you an email or updated employment agreement with the terms of the pay cut outlining how much of a pay reduction and for how long.  You can have a lawyer review the document if your discretionary pay and/or bonuses/commissions may also be impacted.  Your organization should ask you to sign off that you’ve been notified of the change in pay.
  2. How will your performance reviews, merit increases, and bonus structures be affected?
    Taking a pay cut sounds like it may be cut and dry but be sure to ask about how all of your paid benefits will be impacted for the short and long-term. Does your leadership and HR team have a plan for merit reviews and pay for performance programs? Will you still receive full health benefits? What about your paid time off for vacation, parental leave and/or sick time?
  3. Consider negotiating or asking for…
    a) reduced working hours to match the reduction in pay; b) a bonus in 1 years time to help keep you close to “whole” for the year; c) an opportunity for a path to promotion with a title and pay change in the next year if you’ve taken on additional job responsibilities (because some colleagues did lose jobs); d) career coaching, training or something else that benefits your career and growth as a show of good faith and investment in your future

Since these are unprecedented times really anything is negotiable but the business may or may not be in the position to agree right now.  That’s okay. Having the conversation now, even if the answer is “not right now” sets the stage for continuing the conversation in the future. The most important thing is to have an open, honest discussion with your boss to understand the true financial position of the company due to the impact of coronavirus and then get clear on your decision. Will you be frustrated and resentful accepting a pay cut or will it leave you feeling grateful and supportive of your colleagues who are coming together to weather the storm?

Last but not least, if you prefer not to take a pay cut and work full time, you can try and negotiate a severance package to leave the organization with some pay in order to find a new role and collect unemployment.  There is no right or wrong answer or solution.  Organizations are doing what they believe is right based on their business, industry and talent needs.  You always have the option to say yes and stay, or to walk away.

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