I know this is not the cultural norm, but I am curious how long this norm can persist.
Without the ability to cut pay, layoffs are the only option for companies burning cash and losing altitude. That locks pay increases at the same inflated point that the bubble supported but which reality does not.
To go one step further, is there a single advanced economy in which pay cuts, rather than layoffs, are the norm?
Germany does actually have a model called "Kurzarbeit" (literally "short work") to reduce hours across the board while some of the wage losses are being offset by payment from the unemployment insurance system. The idea is to avoid layoffs during times of recession etc. which would allow the companies to bounce back more quickly once the situation has picked up again.
Where is the evidence for this?
I get that it seems like what would happen, but where are the cases proving that's what happened? Especially in an economy shedding jobs, there may not be many other places to go.
Also, studies seem to find that money doesn't motivate people to perform at a higher level.
How do you think of "best"? There are many senses:
(a) People that do well in a particular organizational context?
(b) People with a certain set of skills?
In the software industry, these do change pretty dramatically from time to time. For example, the FAANG style of interviews disrupted what came before. And of course, there is considerable variation between FAANG style hiring and others.
I bring all this up not just to be pedantic... (Is there anything wrong with being pedantic? We should do a proper study to find out, but I digress...) ... because I'm curious if and how the industry is changing.
Many software developers got comfortable with being in the driver's seat and being fawned over. This has changed a lot, it seems to me, in the last 3 to 6 months. Where does this leave us?
What that really means is that if you're paying $200k now, bumping to $250k isn't going to make your workers more productive. However, if you're paying $200k now and you cut the pay to $180k, and your competitors are offering $230k, your best performers are still going to jump ship.
Maybe for an economy-wide recession where your workers have no other options. But if it's just startup risk that are making you founder, you're basically guaranteeing a death spiral. There is some chance if you make it a fixed-term paycut with a payback with interest, but you better have a real cult leader as CEO to get people onboard with something complicated instead of just getting a job at Google.
The best people went to FAANG (immediate comp) or one particular fintech startup (good shot at an exit).
If my employer told me they were cutting my pay by 20% one morning I would already be out doing interviews by the afternoon.
With layoffs you at least control what talent you are giving up in exchange for a smaller payroll. With across the board salary reduction, your most talented employees will get up and leave and the people who remain will be demoralized and poorly motivated.
I experienced this in the dot-com collapse but probably ripping off the bandaid is a better approach in many circumstances especially when cash flow isn't the driver.