Report for FDs: Pay cuts preferred to redundancies

Last month staff at JCB voted to take a £50-a-week pay cut in order to prevent 350 colleagues losing jobs. Around 2,500 production staff based at seven different factories have agreed to work a four day week. The 34-hour week will commence on November 3 and will run for a minimum of six months.

While CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole, has asked a third of its workforce to consider taking a voluntary pay cut of up to 25% in order to avoid cutting jobs.

The 500 senior employees being asked to consider the pay cut have the option of taking a 15%, 20% or 25% reduction. When the new salary goes into effect next year, CLSA staff will receive money back if monthly cost targets are met. Staff will receive what they sacrificed and an incremental 8%, 17%, or 25% depending on the agreed-on reduction. A similar strategy was implemented successfully in 2003.

Helen Murlis, director of reward at the Haygroup, said: “The JCB and CSLA examples show just how important continuity of employment is to people and that they are prepared to trade income to keep their way of life as well as help their employer survive the downturn. This is about maintaining relationship capital and will be valuable to these companies in retaining talent and continuity of skills.”

However she warns: “Companies also wanting to go down this road will need to be clear about the contractual and tax implications of this kind of move and will need to check with their advisers to make sure there are no unforseen consequences.”

Research by the Federation of Small Businesses (FSB) found that 32% of the UK’s small and medium sized businesses are considering reducing the number of hours their employees work in order to save money, while 14% have already done so.

Back to Employee Benefits Report for Financial Directors – November 2008