Lay-off or Pay-Cut? Is there a right way?

With companies across the world announcing mass layoffs. Here is how it compares with Pay-cuts.

In Pay-Cuts, risk is distributed to all employees, as a result everybody loses a small part of their salary instead of losing 100%.

Hence,

1) Pay-Cuts are more humane,

2) Post Lay-Offs, a company’s image is tarnished, a chuck of money is to be spent on PR, re-building public image, payment of severance money, & so-on.

Therefore, Pay-cuts may end up saving money for the company as against its counterpart lay-offs.

So, Pay-Cuts is the winner?

Well, Pay-Cuts:

1) demotivate Employees,

2) tend to retain the worst employees, (best ones are already sitting on job offers)

An ailing company needs to get rid of non-productive employees to survive.

More so, it comes out that, Pay-cut may look good in the short run but are rather detrimental for the company later.

But is it all bad?

In places, where the whole industry/economy is facing a downturn, Pay-cuts may be good, given that there is job scarcity in the market (Raise salaries when situations reverse).

But, if it’s just your company going through a phase, Beware! Pay-cuts may lead other companies in the sector to poach your talent.

Therefore, it becomes all the more crucial for entrepreneurs to understand the economy & industry trends along with their own needs before taking such critical decisions!