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What do you think of executives taking paycuts to give raises to their employees?

Sheldon Reynolds's Profile

If you're an executive, is it something you've considered? If you're not, would that change your opinion of your company's execs?

Answers

Chris Holtzer
Title: Senior Manager - Strategic Analysis
Company: Sargento
(Senior Manager - Strategic Analysis, Sargento) |

It's tough to say.

The narcissist in me, thinks most of the time it is a PR stunt. While there are some executives that make 7+ figure salaries, most are in the low to mid 6 figure range (and salary is only a fraction of their compensation plan). As a result, them even going a year without pay would barely be a drop in the bucket compared to a small raise across the board for a couple hundred employees. ($500k salary / 200 employees = $2,500) As such, I am inclined to believe their decision to give a wage increase is independent of the decision to reduce their own take home.

Said differently, I think the decision to increase your staff's comp is great, and may be pure intention-ed. The decision to cut your own pay, and then announce it to the world, seems less pure in intention, and more a PR stunt.

All that said, is it a good idea or bad? No clue. It clearly does have a positive impact on the employees perception of the leadership, or at least that is what the media would have us believe. And hey, I'd take an extra bump no matter how small.

Anonymous
(CFO) |

Personally I think that it is a good idea. Most executives are well over paid.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

While I don't believe most executives are over paid (some are, many are not), if the company is failing, it makes perfect sense.

Making it a PR release, I agree with Chris, that's a PR stunt.

Jeff Durbin
Title: Chief Financial Officer
Company: F. Gavina and Sons, Inc.
(Chief Financial Officer, F. Gavina and Sons, Inc.) |

Generalizations are rarely correct. I agree with Wayne

James Scott
Title: Consulting CFO
Company: Early Growth Financial Services
LinkedIn Profile
(Consulting CFO, Early Growth Financial Services) |

Base pay is less important than bonuses and options for most executives. Not paying bonuses when company performance is poor is something more companies should practice, and maybe publicize that more.

Bob Low
Title: Principal
Company: Perron & Low
(Principal, Perron & Low) |

It's not clear what the exact circumstances are in your case but I've seen this come up where corporate dictates a wage freeze or cap on raises and individual business unit execs offer to take less in order to give more money to their staff. I've generally opposed that. As Chris says, the compensation for staff and execs should be separate decisions. Execs should not have to dig into their pockets to give their teams raises.

Ern Miller
Title: Co-CEO
Company: Miller Small Business Solutions
(Co-CEO, Miller Small Business Solutions) |

I once worked for a telemarketing firm (circa 1994). We were the sales team for a PC manufacturer (at the time, among the largest manufacturers, and it's nickname was "Big [Something]".

The commission structure was profitable for everyone involved. At the end of the year, it was found out that several of us telesales people made more money than the CEO/owner of the telemarketing firm we worked for.

Well, THAT WAS JUST NOT ACCEPTABLE! The company was far more profitable due to our team. Instead of giving the CEO a pay raise, they restructured the commission to where we made approximately half of what we made the first year. (It felt like we were being led by Rehoboam.)

Well, we all left the company for greener pastures, some of us immediately, some of us stayed with the hope of changing the corporate mindset. We all did leave, eventually. Those who stayed because it was a job eventually lost their jobs when the company went out of business. (None of us were surprised once we realized the mantra of "everything for the employee" was just a hypnotic chant.)

My company, I pay what people want so long as I see a value equal to, or passing my expense to employ them. If someone makes more than me, I am not worried. Many companies invest and spend more on equipment than what the CEO makes. I see investing in my employees as far greater of a benefit. As long as I make what I make, I don't get bothered by what others make.

And, for the record, I feel I should be the last to get paid. There have been times when I did not get a check so that I could make payroll.

I have taken pay cuts. Not to give others a raise, but to respond to lower demand. I treat each employee as an individual, and because my company is pretty small it is a lot easier, so if we grow, I may have a change of mind. Because they are individuals, each employee can make a case at any time to get more pay. Some have gotten it, some have not, and some of those left in search of greener pastures.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

I would have to agree with most of the comments, specifically around the PR stunt, but having been involved in a bonus freeze that people had access to for a very long time makes it tough to live without. When a bonus is tied to company profits and the company is on an upturn everyone is happy and start to rely on that extra income. When profits face a downturn morale takes a dive in an instant and everyone forgets this was just a bonus to begin with. When your top people are struggling to make ends meet; I've considered small offerings to help. If I could live without my salary I would certainly consider helping someone else out; of course I would not announce it from the rooftop either.

Mark Matheny
Title: VP - FInancial Planning and Analysis
Company: Novolex (formerly Hilex Poly)
(VP - FInancial Planning and Analysis, Novolex (formerly Hilex Poly)) |

I think in the right circumstances and intentions, it makes sense. Personally, I have not seen an example where someone has taken a pay CUT for this purpose, but I do know of cases where the executive team took a smaller or no increase. I agree with Wayne that in some cases bonuses and other perks are more important at the higher levels than an annual increase.

Ravi Kaushal
Title: Vice President
Company: Welspun USA Inc
(Vice President, Welspun USA Inc) |

My view is same as of Mark. I have seen highly paid decision makers takes less share of the raise/bonus pool and distribute more amongst their subordinates. But only for a reason and not a general trend. For example, if the pool has less money to distribute, it does not matter to the highly paid employees (as % of their salary) but it does matter for lower salaried employees.
However, I do not agree with using this as a PR stunt. I may let my immediate subordinate know but I will not announce this to everyone.

Anonymous
(Chief Financial Officer) |

Years ago, a few months after I took a role as a VP of Finance, my employer ran into financial difficulty because of the financial meltdown. The owners asked me to draw up a list of savings. I volunteered a $25k pay cut as item #1. It really impressed them and may have saved my position because it was a new position and not a replacement hire. In retrospect, I wish I had volunteered $10k because the economy's rebound wasn't quick and the $10k cut may have had the same psychological effect.

You do what you need to do if it is the right thing to do.

Sara Voight
Title: Controller
Company: Critical Signal Technologies, Inc
(Controller, Critical Signal Technologies, Inc) |

My father is a business owner and he has frequently taken pay cuts, or zero pay, to help the business and maintain staffing. He also takes the time to share some of our financial statements with the staff so they understand and even help when the economy isn't great and we have to find savings. His pay cuts are done silently, however, there is always some leakage and the staff become aware that he has given back to the company. The loyalty he has derived from his actions, honesty and transparency (not words) has helped him for over 30 years.

I get turned off with the PR focus, as that often means the pay cut announced is being replaced by something else.

Ken Mason
Title: Controller
Company: Pascua Yaqui Tribe
LinkedIn Profile
(Controller, Pascua Yaqui Tribe) |

Back in my newspaper days, the upcoming annual budget was extremely tight and called for layoffs even before the cuts that would come if we had to activate our contingency plan. I suggested to my boss (CFO) and peers that we waive our MBO bonus to save the poor custodians who were to lose their jobs. That idea gained no traction and the cuts were made.

Fast forward to my non-profit service, where the experience was very different. Facing a tight budget, the CEO proposed to take a 10% cut and that the leadership team take 5% cuts. There was general agreement, jobs were saved and we were able to ride out the recession with pay restoration after a year or two.

Topic Expert
Scott MacDonald
Title: President/Owner
Company: AlphaMac Resources, Inc.
(President/Owner, AlphaMac Resources, Inc.) |

Sheldon, I think the question is a little silly as presented. Is the company in financial distress? Are employees actually underpaid and the only way to give them raises is to reduce the pay of executives? Your question also seems to infer that executives are being paid more than their actual worth, which is a whole different question.

Your question is a little passive-aggressive so it would be helpful if you expanded a little more on what your REAL beef is.

Anonymous
(Tax/Business Consultant) |

Public or private companies?

Public companies...
Heck, yes... it makes a difference... at least for PR purposes.
Many execs make money from stock options.
Having a $1/year salary is nothing when a person can cash out options for >$1Million.
Total BS!

Private companies...
Mixed feelings.
Been in both situations....
Employee... If you work hard for the company, you'd like to get paid and not have your paycheck messed with. Unfortunately, MANY companies mess with their employees payroll >:(
Owner... Depending on the economy, some years are better than others... Everyone needs to get paid to survive... there are bills to pay!

Leaner companies can't afford to have bosses not to pay themselves.

More profitable companies... I've seen abuses at many private companies that it's sickening! Then again, it's the owner's company so what can anyone do?!

But when an owner treats his/her employees well and the employees see how hard the owner is trying to make the company survive, many of them actually help out.
They know that times can be tough and if the owner takes some form of a paycut, then the employees are relatively more willing to have their pay frozen, at then current levels, or take a pay cut or else be let go.
When the company improves, some owners actually "treat" the employees even though the pay including that of the owner hasn't risen. That sort of treatment builds up "loyalty" within the company.

Nowadays... most companies give out ridiculous compensation Packages to executives while freezing out salaries for staffers or not hiring any additional staff to help the existing staffers who are basically stressed out by the overbearing workloads! When times are tough, the staffers are let go while executives are still paid well! Staffers are nothing than "disposable" assets than "valued" assets!

Let's be honest... NO executive will ever want compensation reform! Why?!
It's obviously... self-interest!
If you limit the comp package for an executive, it may or will eventually happen to YOU!
It's a vicious cycle as more and more executives care more about getting paid than doing their job!

Anonymous
(Controller) |

In my humble opinion, executive salary should align with how well the company is doing. Most execs seem to do well no matter how good or bad the company does. I think it's good to make an internal announcement of a reduction in compensation package, to guarantee raises for the workers, when the company is getting stretched (either rapid growth before the payments start coming in or hard times), Announcing that the compensation packages have been restored are probably a good idea too to help promote an open atmosphere.

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