There’s an article in BusinessWeek that talks about the growing trend that some companies have been taking (my former employer included). Instead of cutting staff they are cutting salaries, and bonuses and benefits.I always feel a little callus when I talk about job loss because I don’t come across as very sympathetic. If I do, I don’t mean to. I just think layoffs are the result of bad decision making on the part of the employer and/or the employee.

Cutting Salaries Instead of Jobs - BusinessWeek

Traditionally, criticism of pay cuts has focused on the impact they have on morale and productivity.

Rationally this makes sense. And having gone through it I can tell you that employees will *say* they agree with the approach. Better cut our pay than see our fellow workers (or ourselves) loose their jobs. And for the most part they mean it.

The problem I have with this is that usually they are just avoiding the inevitable. While I was at HP I went through multiple rounds of layoffs and ultimately saw our salaries cut. When companies cut salaries they are told that management thinks the worst is behind them. That they think they won’t have to cut again. If they didn’t they would be cutting jobs not salaries, because you can’t go back to that well again.

Last week I heard HP was cutting more jobs, as are many other companies. This has to be demoralizing to the employees that are left. They layoffs are slowing and the amount of jobs that are being cut are less but the approach is wrong, in my opinion.

The BusinessWeek article quotes several HR experts who call this managerial cowardice because they should just cut jobs. Employees will remember these cuts. Top performers know they can always find a job. I was never afraid for my job at HP. I knew they wouldn’t cut me. I was fortunate enough to have a rare skill set and set of experiences. Even if they did cut me I knew I’d not have any difficulty finding a job or starting a company.

I also disagree with the BusinessWeek article. At this point companies should not be cutting jobs or salaries. Large companies need to be cutting business groups. The first couple rounds of layoffs at companies got rid of under-performers. As I’ve said before these employees were not bad, probably just complacent or in the wrong position. At this point companies need to salvage the top 10% that’s left. Move them into critical businesses and cut under-preforming businesses.

The media world could especially learn from this.

The problem is that cutting businesses is even harder than cutting people. That business might be bringing in money. Or companies have invested a lot of money into that business.

These may be true but what if you focused on your core businesses cut everything else and then gave your remaining employees raises? How hard would those employees work? How likely would you be to succeed and gain market share in that business?

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