I’m a senior executive working in management consultancy and have been asked to take a 10 per cent pay cut. My employer has not said it is temporary, just that it will be reviewed in three months. They have said that if we don’t take pay cuts, redundancies would be on the cards for a number of employees. Should I agree and what are the considerations?
Meriel Schindler, head of the employment law team at Withers, says that sadly you are among the very many people in the UK being asked to accept a pay cut in the current climate, but you are not entirely at your employer’s mercy and should consider some options.
If you accept a cut it will involve a formal variation of your contract. I have not seen your contract, however, your employer is likely to need your written agreement to a variation involving anything as significant as a pay cut.
Before accepting a pay cut you should explore whether all of your peer group and those senior to you are also being asked to take an equivalent cut. You could also seek to negotiate the level of pay cut. Would your employer be content with, say a 5 per cent rather than a 10 per cent cut?
If you refuse to take a pay cut then your employer either has the choice of backing down or, as threatened, making you redundant.
If you have been employed for more than two years then your employer will need to follow a fair process and in particular select you fairly for redundancy or risk falling foul of unfair dismissal law. If your employer is strapped for cash they may only pay you statutory redundancy and your notice period. If you have been employed for less than two years then you are somewhat under protected and your employer is likely to exit you by simply paying you your notice pay.
However, there are steps you can take and there may even be advantages to be secured in this situation. The advantage of agreeing to a pay cut is that you retain your job at a time when it may be difficult to get out and look for a job. If you are contemplating accepting a cut, I would also try and agree an automatic reinstatement of your previous salary after three months rather than simply “a review”.
Additionally, it might be feasible to agree a bonus for achieving certain targets, which might go some way towards compensating you for the cut. In return for accepting a pay cut, you might also be able to negotiate other non-monetary benefits. This could take the form of more holiday or an acceleration of any deferred stock awards or a relaxation or even deletion of any irksome post termination restrictions.
Your decision as to whether to take a pay cut of some sort, or to take redundancy will depend on a lot of personal factors. If you are happy to leave and will find another job easily then this may be a blessing in disguise. If you will find it difficult to find new employment, you may be better off accepting a pay cut but negotiating hard on its terms.
Corinne Aldridge, head of employment at Kingsley Napley, a law firm, says it is not just star footballers and chief executives who are under pressure to agree to pay cuts in light of the coronavirus epidemic. Many employers are calling on senior managers like yourself to “do the right thing” too.
In some organisations, employees across the board have been asked to sign up to a voluntary pay cut, sometimes in return for reduced hours. Others are offering unpaid leave and sabbaticals with the promise of employees returning to work under normal conditions when the crisis is over. Another approach is to request senior executives take the strain, so helping to delay the prospect of redundancies.
The moral and business arguments for sharing the pain are clear, but individuals do need to weigh up how the financial and practical implications square with this.
The obvious question is whether you can afford a 10 per cent cut. From what I am seeing, reductions are typically between 20 per cent to 40 per cent of salary so your 10 per cent would not be unreasonable in the current context. Furthermore, if you refuse to take the pay cut, you may open yourself to accusations of not being a team player and also to the risk of redundancy anyway.
What is more worrying is the open-ended nature of the proposal. You should try to get assurance that any change is not permanent and tell them that the proposal for a review gives you little comfort. There may also be ramifications if you are ultimately let go. You would want any redundancy compensation to be on the basis of pre-cut pay and you could perhaps ask for that assurance.
Another consideration is whether the cut is to your monthly salary only or it would impact other benefits such as pension contributions, holiday allowance and commission or bonus arrangements. Ironically, there may be a personal tax benefit.
While it may seem insensitive at the current time to mention discrimination claims, it is worth questioning to what extent others of your grade or particular team are also being asked to share the pain.
The last issue is how your employer intends to formalise this new arrangement — via a simple email confirmation of acceptance or will a formal contract addendum be prepared? For most, the form may not matter but it will be vitally important that any changes reflect what has been agreed to avoid future disputes.
As a management consultant, you will no doubt be attuned to the financial position and profit outlook of your company, client project pipelines and overhead costs. I am sure this has all been factored into the request you have received.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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