Ask HN: Should I sign a pay cut agreement?

I was once asked, during the original dot-com crash many moons ago, to take a pay cut. I replied, essentially, that this was fine by me, as long as I could cut my weekly hours proportionally (I was working full time). I never heard anything more about it, and my pay was not cut, nor was I asked to reduce my hours. This was a small company, and at the same time, other people at the company were being let go.

Hmm. Where did that end up? Did the pay cuts alleviate over time or did those people get laid off when the company did worse?

The company was entirely focused at what turned out to be a technological dead end, so the business did not improve much in the short term. I don’t know what happened much later, though, as I later quit that job for unrelated reasons, but the company seems to still exist, and they seem to have pivoted to other products.

This is the way to go.

Forget about the company, this boils down to choices. Can you get another job relatively easy within a month, or for as long as you can finance your unemployment?

If the answer is no, you need the job and most likely should take the pay cut.

Whatever your choice will be, it's time to start looking for a new job. The behavior you describe in your employer sounds to me like they don't put value in employees.

Thank you. I'm not bothered about the company, though I do like the employees and the work. I'm trying to find the best way forward mid-long term for me. The company won't think twice about letting me go. I have options for jobs that I am reasonably confident about. They're becoming more attractive over time.

I would blow off signing it for as long as possible while interviewing with other companies to see what you can find then make your choice. The only scenarios I would sign that is if there were no better options compared to the 10% cut, or i had absolute faith in the companies management in terms of ability and trust (extremely rare, almost always a mistake)

> Whatever your choice will be, it's time to start looking for a new job. The behavior you describe in your employer sounds to me like they don't put value in employees.

Well even that aside, when your employer has known money issues, especially to the extent that they're struggling to pay staff, ... Hopefully OP won't need it, but I wouldn't wait for the company to go belly up to start looking personally.

It doesnt seem like they are struggling to pay staff, at least in context of what he said.

What would be your alternative. I'm guessing they are taking measures to not lay off more than 10% of people. Is there a win/win scenario here?

I'm more curious than anything to be honest.

You think they're cutting pay because despite having no problem affording it, they're.. what, concerned they're offering above market rate?

I'm not claiming to have a good alternative for a company in trouble, I'm just saying if my employer is the company showing signs of trouble like that I'm going to start looking around.

> They chose to cut salaries rather than cut the office rent and catered lunch/snack expenses

Real-estate is surprisingly hard to get rid of. Depending on the size they might be stuck with a multi-year lease. Cutting snacks and lunch doesn't substantially change the equation.

That said, I'd start looking for another job. Layoffs AND a paycut for those that remain doesn't fit well. Might as well layoff more people and keep the others "happy".

Real estate is also really cheap in comparison to actually paying people, especially in some areas with long-term deals.

Well, depends, if now more than half of your company isn't in office after COVID and move to WFH I can see it being a pretty big part

I am unsure if 10% cut would be covered by dropping an office. The area is very affluent and exclusive. Note that it is a pretty small company.

Whether it would help or not is irrelevant. You can't just "drop an office" - that's not how offices work.

It's likely, even probable, that the landlord has already been squeezed for rental drops - certainly most folks did that during covid. To drop the office means waiting until the next lease expiry - leases are typically 5 years long, so figure a year or two away at least.

People here earn enough for the food to not be on their radar. I guess the office/food is symbolic, though I do understand real estate is hard to get rid of. They could rather have taken on the debt and kept good people (pure speculation, I have no idea).

It's hard to Guage overall morale since we're split into segregated teams per project so there isn't much intersection outside of the dead Slack server.

>> They could rather have taken on the debt and kept good people

Nope, this would be a really bad approach. Let's leave aside the issue of _getting_ debt - banks are likely to be reluctant to offer debt to a business that is strugelling.

Taking on debt though to pay for staff you can't afford from revenue is only useful if the issue is cash-flow related. If the issue is income related then taking in debt is bad for the business, and bad for employers.

If the salary bill is too high then it has to come down. One way is to shed jobs. Those affected are affected 100%. Those unaffected are unaffected 100%.

The other way is salary cuts. Everyone is affected 90%. Which is better depends on which side you are on.

Some employees want to stay enough that they'll take 90%. Others will jump ship. If you have a job to go to, and you want to go, then go. That will free up 100% of your salary for the others.

Of course they know what happens if you don't sign. They're not morons. I'm surprised you even asked. The scenarios are obvious;

A) business goes under. All employees get nothing. Or B) another round of layoffs. (but this means severances, so may not even be possible) or C) enough people sign to lower the salary bill enough, but not you - you get to keep 100%. (this may not be ideal for your future raises etc) D) you quit.

I don't know your company, or your bosses, so I can't speak to their motives. But the fact they are asking for this suggests that the margin between success and failure is narrow. Like 10% narrow. They are offering you the opportunity to share pain, rather than cut more jobs.

At this point the ball is in your collective court. Feel free to leave. You might just be doing everyone a favor.

Agreed!

Think of it from the employer's perspective, if they're coming to the team with this proposal, it's likely they see a difficult financial Outlook. (Either that, or the management feels it's time for a culture reset)

I can only speak for myself, but I don't think many people enjoy the prospect of having to do a layoff. But sometimes it comes down to that or winding down the company, to me, in such cases, the choice is obvious.

pay reductions, are of course suboptimal, but they remove the need to spend a whole lot of time and money recruiting to rebuild a team once things turn around, so it's a sensible play from the employer perspective.

If it were me, I'd consider if I was motivated enough by the work independent of financial compensation to want to stay part of the organization, if so I'd consider taking the pay decrease but I would definitely push to for some future recognition that I took the risk for the good of the team. Ideally in writing.

An agreement to take a pay cut is effectively an agreement to commit to an ongoing investment of 10% of your current salary in the company for an unspecified amount of time for no return and the sacrifice of the capital amount.

A good benchmark would be to ask yourself what the return would be if you invested 10% of your salary in unit trusts over the same time period.

This is not a good deal and I would be hesitant to entrust my career to a management team who feel it is okay to ask this of their employees.

There are a number of ways this could have been structured, including:

1. An agreement to pay back the 10% plus interest @ prime within a specified time-frame.

2. Issuing of a comparable amount of shares in the company in exchange for the 10%. Dividend-bearing if a private company, trade-able on the JSE if public.

Thanks. That's a new way of looking at it for me. No form of compensation was offered other than "wait and see." So I don't feel confident that they will make up for it if things do get better. I don't want to suffer through a pay cut and then be laid off if they do worse either.

I have some options in terms of contacts. Perhaps it's a good idea to reach out.

I've only been in situations where pay-cuts were offered a couple of times. In both cases equity was offered. In the more recent case, equity was offered with instant vesting, and there was a commitment to repay the deducted pay in full after the situation (short-term cache flow issues due to delays with fundraising) had ended.

The 2nd case was obviously a better deal, the only risk to me was that the fundraising would fail completely. If they're not offering you any kind of upside, you need to push back.

Equity would definitely soften the blow. But yeah, nothing for us.

I think you need to figure out how important you really are to the company, and how competent your management is.

Are you in a position where, if you leave or are let go, the company would be hurt? (And the management is competent to know it?) Then hold your ground. Point out what will very quickly happen if you were to leave or be fired.

Otherwise, just ignore the request as long as possible and change jobs. If it's customary to give notice before you leave, make it abundantly clear that you're only staying through your notice period at full pay.

(Also, FWIW: In the US and many other places in the world, a lot of high-tech companies are run by people who have no clue how to run a company. Some people come from money and are just trying to follow in their parents' footsteps. Other people are just gambling and keeping up appearances. If you work for someone like that, now is the time to change jobs.)

In the US they don't do this. The thinking is someone getting a lower salary and the same job will not be very motivated. It's better to just get them go and keep other employees at their same level or higher.

I would love to know how people at the company feel about this in terms of morale. It's hard to bring this stuff up. I would rather be laid off than have this because there's at least a runway with known pay to find a new job.

That's not true - my last two companies have done haircuts along with layoffs. At my current company we were promised a bonus of Nx the haircut at a certain point in time as compensation...though whether that happens or not is still to be seen.

Did those companies perhaps recover or did it go further south?

Did they make that promise in writing?

My current company did an across-the-board paycut at the start of the pandemic (salaries reinstated later that year).

One year is a long time. Did they give raises at that point too?

No, but there were year-end bonuses.

I have definitely experienced this within the USA.

Kinda-sorta. We took temporary pay cuts at the start of the pandemic. One dev left, we got the PPP loans, and then full salaries were restored - that all happened in a couple of months. Then about half a year later, our whole team was offshored.

(employer speaking) at the beginning of the pandemic we sent everyone home, and did across the board pay-cuts (50%) for alomt everyone (we set a floor so those least paid kept 100%).

Those that could work from home did. Some worked 100%,some 50%.

Over the first 6 months we assessed monthly, and slowly raised the floor. Once everyone was back on 100% we paid back-pay for all the missing pay (even those who chose to only work 50%).

Ultimately everyone was made whole, actually considering the saving in fuel from commuting came out way ahead. We managed to avoid any layoffs.

Not surprisingly (to us) we got very few thanks. Mostly we're told how bad we are running the company. Bonuses are too low etc. A long career being an employer has shown me that (with rare exceptions) the more we look out for staff the less they appreciate it.

Paying only 50% means mortgages go under. Spreading your loses to employees who don't have the upside is not fair. Did you share 50% of the profits (upside) or just pay the amount you took back from them. You are not going to win employer of the year by shifting your risk to the backs of your employees and rewarding them by paying money they should have never lost. They should get a bonus.. you did. Did they not share in the risk? Should have taken a loan or let people go..

>> Paying only 50% means mortgages go under.

Given that the country shut down with 3 days notice, everyone was in the same boat. Banks offered the usual payment holidays and so on.

Certainly a lot of companies did as you suggest, and simply let everyone go. I'm not sure that's better than 50%. Clearly all our employees were welcome to quit, and since none of them did, I guess they preferred 50% to 0%.

I'll be sure to mention to them next time that they're welcome to take 0% instead.

Loans were not an option given that the banks were closed. (And given that our appetite for large loans is zero.)

>> They should get a bonus.. you did.

Did I? news to me :) I was on 50% like everyone else, and I was made whole last. As it happens we issued 2 bonus' the following year. So yeah we share profits.

Obviously there were different approaches to dealing with unprecedented events. I'm not looking for employer of the year, but on the other hand I don't like firing people unnecessarily.

Incorrect, I've experienced pay cut once in the US, it lasted a few months and once the company improved its cash flow we got back paid.

I've also seen benefit cut like getting rid of 401k contributions

It all depends on if your billable. If rates are going down than to keep the margin you have you have to cut pay.

I think this is mostly true but depends on the industry and "critical mass". If you have enough people, then letting people go and then filling in with OT hours (remaining people) is still more cost effective all things being equal (some people may actually welcome the OT hours here and there) and not chronic understaffing

Just as a general negotiating tactic / principle, I'd avoid doing this for free / nothing.

I'd respond positively and explain that you understand the situation and would like to help. See if they can offer fewer hours, more vacation time, equity, debt, promotion... literally anything in exchange for this reduction.

Everything has a price, and nothing is for free.

Once you sign that stuff, your overall compensation goes down forever. Your raise and bonus will less since it's based on your overall salary, which is now cut if you sign.

Then when the company lays you off, your severance package is even less due to the same reasons as above.

The whole thing is going to have cascading effect, and since you can't predict when you'll be laid off given how cavalier they've been doing it so far, better not to sign it. Seems like the company is trying to cut costs before laying off again to save even more money.

And even if you are laid off because you didn't sign, at least you'll have the satisfaction that you didn't bend over backwards for their crap. Staying true to yourself is what you'll regret the least in the long run.

"We're hoping that everyone pulls together" is just a polite way of saying "My way or the highway". At-will employment works the same everywhere.

Fortunately I am not employed at-will but I do honestly think that answer is genuine.

It sounds more like they hope they won't have to fire more people (probably so they can still achieve their goals), but not agreeing to it ensures there is government support for an employee in case of a layoff (guaranteed severance, unemployment benefits, pension fund contributions etc).

Depending on the market and your personal circumstances, you just need to put ~3 outcomes on paper and decide what's best for your family and you: you agree to a paycut, you don't agree and don't get fired, or you don't agree and you get let go.

This is the case. There is a safety net with refusing to sign so it's a choice between betting on the company or winging it and hope they keep to their end of the law. If they fire me for not agreeing there is a body that handles such cases, since that's effectively unfair dismissal and you get paid out N months too.

Except the CEO, they keep the bonus lmao

Leadership took a 15% pay cut a bit before ours was announced. They said it was to avoid impacting employees but then they did anyway, so my confidence in their promises is quite low.

I was working for a small web-dev shop during the 2008 crash and took a pay cut at the time. I knew the owners pretty well (they worked in the office too, at desks just behind mine), and knew the business was under a lot of pressure, so I didn't begrudge it. Working anywhere else meant a much longer commute, so I stayed ... until they paid me late one month and I found another job and left. Again I didn't hold it against them personally, but not-getting-paid would have been a big deal for me and my family, and getting paid late meant the risk had gotten too high for me. The business turned the corner eventually and is still going, but I actually enjoyed the other job much more and the move ended up being a big leap forward for me career-wise

So basically here in South Africa this isn't illegal, but you need to consent to it. The company's choice after that is to either ignore it or to start a Section 189 retrenchment process. Also there are some other rules in place that regulates when it's ok to do and when not.

Have a look at this link for some more answers: https://deale.co.za/unpaid-salaries-labour-law-in-a-nutshell...

Overall I'd go with 10% isn't a huge problem and to just agree to it, but keep your eyes open. I know of other companies during Covid that did 50%, or reduced working hours etc.

I feel your pain... heaps of credit card debt but was making a very good salary and my company cut my pay and only gave me a month's notice, so I've spent 2 years essentially playing catch up now to pay off my credit cards instead of the 6 months it would've taken.

I didn't get a choice though I didn't sign anything either. It just happened. So now I just show up and do my job. Nothing more, nothing less, no overtime, I don't volunteer for any additional projects. Very cut and dry. After 10 years of working for the same company and that's the thanks I get, I appreciate the fact that I'm still employed. And that is all I need to be.

You may be stuck or just don't sign.

I would take the pay cut and use the working hours to get prepared for future tech interviews. In any case, I guess you don’t want to work for them anymore.

Not a place you want to invest your time at. Look for other opportunities m. Not sure if the local regs, but maybe they are just looking for a way to cut costs on the next round of layoffs. Typically unemployment comp is based off prior comp levels.

> asked what happens if one were not to sign, and the response was "Oh, we haven't thought about that. We're hoping that everyone pulls together."

My next question would be "what are the benefits of taking a pay cut?"

I was in a similar situation in April 2020. I think we had to sign a 20% pay cut. COVID having just started, I signed. After 6 months, they reverted the salary, but I left shortly after. I still regret signing the pay cut

How did the pay cut influence your quality of life during those months?

Not at all. But I'm pissed off that I stayed in a crappy job for worse pay.

We had a 20% pay cut for covid in 2020, but they also cut hours 20%.

It was actually pretty nice.

If they had cut our hours too, I wouldn't have gone back to the normal salary :)) but we were still expected to work 40 hours a week.

Would this decrease the amount you’d get as severance if you were laid off?

I think all we can do is ask questions and help you reason about this. Whatever decision you make, at least it will be informed and not rushed.

I'd be going with option 3: Start shotgunning resumes. Clueless management will remain clueless, even if they luck their way out of this particular crisis.

Around 2010 the company I worked for had a pay freeze. Most employees worked in the office, but about 1/4 worked remote. About three years later the freeze was lifted. The in office employees were notified about said policy change and got raises shortly thereafter. Us remote employees didn't know about the change until almost 2 years later. After an in office employee mentioned it to one of us.

When we brought it up to management they were apologetic, and said they forgot. I work for a small company that wasn't particularly organized so it's possible they forgot but still. :(

TL;DR; If you take the pay cut, check in every few months with both management and others at your level.

If you want to keep the job, sign it.

If you don't, don't.

It's not quite that simple.

It's not quite that simple.

Then only you have the necessary information. Stop asking us and/or fishing for sympathy.

I’d be interested in proof of me fishing for sympathy here. Does stating a situation count as fishing? I’ve made no requests for help beyond info around the situation. Sometimes people are human and need to ask more experienced people how they handled things

Instead, I get spam from a throwaway with an equally abusive comment history.

Seems that simple to me.