As economic uncertainty continues, many employers are still looking for ways to cut costs. Labor is a large cost, of course, but employers should not move forward with pay cuts without great research and consideration, says Ken Oehler, global engagement practice leader at Aon Hewitt, a human resources consulting and outsourcing firm in Chicago.
According to research by Aon Hewitt, pay is the No. 3 driver of engagement globally. Many employees have already experienced their share of bad employment news, such as layoffs, furloughs, benefit reductions, and pay cuts and freezes, Oehler says. Going through another round could destroy engagement and cause employees to start looking for other opportunities.
"Pay cuts are a pretty tough message to send," Oehler says. "A lot of companies have already gone through pay freezes and cut backs; employees have been through a lot. If keeping employee engagement, retention and morale is the goal, understanding where pay fits into that equation for employees is the starting place."
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However, if pay cuts are inevitable, an employer should also consider implementing low- or no-cost engagement programs and immediately communicate those to employees, Oehler says. For example, recognition and career planning are two programs that can significantly improve engagement but have little cost to the employer. Employers can even distribute basic retention and engagement pulse surveys to understand how employees are feeling about the environment.
"In good times and bad, we find having performance management conversations is an important retention and engagement driver," Oehler says. "Managers should connect with employees and help them understand where they're going."
When pay cuts are announced, an employer should also be open with its employee population and communicate the entire story, Oehler says. Employees need to understand why pay cuts are the appropriate move for the business and what they can expect in the future. The employer should also emphasize the importance of sticking with the company during this time. Although it may be a difficult situation, focusing on need for retention helps employees feel that they are valued and an important component to organizational success.
"You're bringing employees into the conversation about the business context rather than explaining what is happening to them," Oehler says. "Keeping people involved in a longer-term vision and mission is really engaging to employees. They feel connected and believe they're working for the best team. Most people know what's going on around us and understand that times are tough, but this helps soften the message."
While there are ways to communicate pay cuts effectively, an employer should take great consideration whether this truly is the best way to reduce costs. Pay cuts may have a quick impact on the bottom line, but it can also lead to lasting negative consequences when it comes to engagement, retention and morale.
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