The Berkeley Assets viewpoint: Layoffs vs. Pay Cuts

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As capitalism plays out and employers across the globe find themselves presented with yet another economic downturn, the automatic first step many companies take to lower costs is to reduce headcounts. Most companies will have a layer of fat that can be trimmed when a reason or cause presents itself.

However, it is known that rising unemployment creates a self-reinforcing downwards spiral. Laid-off employees spend less, while still employed workers will be more careful with spending and increase their savings out of fear due to uncertain job markets. This overall decline in spending leads to a further decrease in revenue for businesses and ultimately to more layoffs. 

In addition to the negative economic impact that widespread layoffs entail, companies have learned the difficulty of rehiring once economies recover. This method is often an expensive and time-consuming strategy. Thus, in the current crisis, many firms have chosen a different path and decided to implement firmwide pay cuts rather than opting for layoffs, providing a glimmer of hope that the economy will rebound faster than usual.

Studies have shown that announcing pay cuts can be fraught with turmoil as it is usually the firm’s most qualified employees who leave and actively seek out new opportunities when pay is reduced. However, COVID-19 has changed the established dynamic since the negative effects of the pandemic have impacted almost all industries and led to a hiring freeze across businesses. Thus, employees are more likely to accept a temporarily lower pay due to limited alternatives.

At Berkeley Assets, we recognize the distinctive advantages of reducing salaries rather than laying off employees and decided that retaining our staff is our primary aim. We are proud that we haven’t had to lose a single member of our team. Our team was able to use their annual leave plus unpaid leave if needed rather than opting for layoffs. A crucial impact on this decision making was the fact that we know how difficult it is to find, train, and keep our staff as we invest heavily in our office culture and team building. 

Berkeley Assets understand that an efficient and positive employer employee connection is built upon consistent values together with the understanding that it is a two-way relationship where loyalty flows in both directions.