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How To Handle A Pay Cut

May 16, 2008
If your company is in financial trouble, then there are 2 possibilities that exist - you may lose your job entirely, or you may be facing a pay cut.

Either situation isn't particularly welcome news; however, the latter is probably less financially disastrous.


When your boss announces the bad news that your pay will be reduced, don't accept it immediately and refrain from making any type of agreement - either verbally or written. If you are compelled to do so, then you should ask for some time by saying that you need to think and discuss it with your family before complying. This will give you the time you need to understand the situation and find out all the facts surrounding the salary reduction before you accept it.

A salary cut can affect your lifestyle and your benefits package, as sick and vacation days are usually calculated based on your salary. A reduced salary structure can also affect your salary negotiations with future employers, as your last salary is always considered crucial when it comes to salary negotiation.

Get the Facts

Once the shock wears off, you should go on a fact-hunting spree. Ask your employer some important questions:

1. Whether the pay is cut is mandatory or voluntary
2. How much of your pay will be cut
3. Who else will be affected
4. How long will the pay cut will last
5. Will there be any retroactive reimbursement
6. How will it affect your benefits
7. Is the company planning to work overtime to turn things around

After understanding all these points then you need to ask yourself some questions:

-How desperately do you need this job
-Do you believe the company, and do you feel they can recover
-How much do you trust your superiors
-Do you want to move on

After understanding these points, you can speak with an employment attorney and then proceed to negotiate your pay cut.

Negotiation Benefits

Once you understand all your legal options and rights, then you can negotiate so that the pay cut will have less of a negative effect on you personally. You should try to negotiate your working hours and suggest a reduced schedule, such as only working four days a week. You could even suggest telecommuting to reduce your travel costs.

Attempt to negotiate your stock options, if you believe in your company and its values. If you don't have any stock options, then you can ask for some; and if you only have a few, then try to get more.

Always get a written agreement detailing all the details of the pay cut and ask when your old salary will be reinstated and if there will be any compensation for lost wages.

Going through a pay cut can be very unsettling - but by following the steps above and looking out for your own best interests, it doesn't have to be traumatic.
About the Author
Tony Jacowski is a quality analyst for The MBA Journal. Aveta Solution's Six Sigma Online offers online six sigma training and certification classes for six sigma professionals including lean six sigma, black belts, green belts, and yellow belts.
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