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Cut Pay Or Jobs

February 26, 2009, 5:52 PM by Don Jorgensen

Cut Pay Or Jobs

Recently, we've seen companies cut salaries to save jobs and stay afloat.  While some employees are willing to make that sacrifice to keep their jobs, one economist says that might not be the best option.
 

Avera McKennan announced this week it's reducing most salaries as a way to avoid any layoffs. Conversely, Hutchinson Technology laid off all of its employees and shut down the Sioux Falls plant. But how does a company make those tough decisions? 

"If you're trying to retain skilled employees because you think the future is going to be profitable and viable in the future, you'd make the decision to try and retain as many of those skilled employees as possible," Augustana College economics professor Reynold Nesiba said. 

Reducing pay is one way to do that. But Nesiba says the company has to pay close attention to company morale. 

"If you can really convince your workforce that we're all in this together, you can figure out a way to pass on those pay cuts and still make people feel they are really valued and that you really need them and that things will be better in the future," Nesiba said. 

But Nesiba says what's good for the company isn't always best for the employee. 

"If you have to take a pay cut of five or 10 percent, you might not be able to make that mortgage payment or car payment. In essence, you'll have to end up leaving your job anyway to pay the bills," Nesiba said.

But before you walk away, Nesiba says consider the company and working atmosphere. 

"If the firm is going to be making money in two or three years and be viable, is it a really good fit? Do you like the management, do you like your co-workers? So it's not just a financial decision, it's also an emotional decision," Nesiba said.

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