In the midst of the recession, more than a few corporate executives made the difficult choice to cut their employees’ salaries. Companies whose profits depended on the health of the economy might have been at risk for bankruptcy if unable to cut costs. Reluctant to lay off employees, many troubled companies convinced the employees that the cuts were the best way to share responsibility for allowing the companies to survive the economic downturn as unscathed as possible. Company loyalty and faith was the new cult, the new nationalism. Stick by your company in difficult times.
And with unemployment levels so high, many employees couldn’t leave, even if they wanted to. A salary cut may be bad, but it’s better than being unemployed.
I’ve heard stories of a non-profit organization where, even in times of overall economic exuberance, the company’s cash flow was in such a sorry state that employees didn’t get paid. There was no cash for the payroll, and no bank would extend credit. The problems came back with the recession, and salary cuts were necessary. The CEO looked towards the example of Howard W. Lutnick, the much maligned CEO of Cantor Fitzgerald.
After the September 11, 2001 disaster, the financial firm Cantor Fitzgerald was left with only a small fraction of its employees. Rather than allowing the company to disappear, Lutnick aggressively worked to rebuild his organization. Part of his plan was to immediately stop salaries for the families of those who perished in the terrorist attacks. Lutnick became one of the most hated men on Wall Street, according to the New York Times.
The difference between Lutnick and the non-profit CEO who wants to cut salaries is that on Wall Street, the salaries were replaced with a promise of a 25% profit distribution to families each year for the following five years. The families didn’t have faith that the company would survive, but in hindsight it was a good bet to take. In total, the families received more than they would have received if they continued to receive salaries. The key here is that Lutnick offered something in replace of the salaries, even if it was a risky bet.
While Lutnick is viewed as a genius by CEOs who want to lower salaries in hard times, these CEOs aren’t offering much in the way of a replacement other than the continuation of employment — and even that is not guaranteed. This is even worse with smaller organizations, particularly non-profits, that have nothing to promise.
Non-profit organizations often count on employees believing in the mission rather than being motivated by money. Salaries are generally lower than they are for equivalent jobs in the private sector, so working in non-profit requires some acceptance that income opportunities are somewhat limited. From my experience in non-profit work, I could see I was in the minority. Many co-workers came from families where money was not a consideration; there was enough of it such that a salary at a non-profit job wasn’t even worth negotiating. Some married a rich spouse, some had family money, and others just lived with their parents. When the bulk of an organization’s employees are not concerned about salaries, the executives are not concerned, either.
If no one in the organization is motivated by financial compensation, it creates a culture where executives can get away with anything. For those in the minority who need to earn money to pay rent, buy food, and transport themselves without use of a company-owned vehicle, the question is whether the company’s mission is worth the possibility of being financially destitute.
This is much different than Cantor Fitzgerald’s Lutnick asking his community to make a financial sacrifice in return for a potential financial reward.
Have you every taken a salary cut for the same job — or for an increase in responsibilities? How did it work out?
Published or updated September 4, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.