Lay-offs versus pay-cuts

We are fast approaching the difficult decision of lay-offs versus pay-cuts . This Covid 19 crisis is one of the worst to hit the tourism industry and it has impacted all its segments –inbound, outbound and domestic, leisure, cruise, adventure, corporate meetings, conference, and exhibitions.

The Indian Travel Industry employs a whopping 12.75% of the country’s total work force, 5.56% of it direct and 7.19% indirect. Over 87 million people were employed in the tourism industry in 2018-19. The Indian tourism and hospitality industry is staring at a potential job loss of around 38 million, which is 47% of the total workforce,” due to Covid-19, a report by KPMG, a financial services and business advisory firm, said on April 1.

The Covid-19 pandemic is still far from over and may be even until the end of 2020 before it is brought under control, even by the most optimistic estimation, travel is not going to normalize until 2021, things are going to get even worse before they get better.

Employees are now working from home, others asked to take their allotted leave or take leave without pay. Senior staff have been asked to take 30% – 40% pay-cut, If the global situation does not recover soon then we are looking at mass lay-offs by June / July 2020

This is now a question of survival for all of us, in such a scenario the balance moves between lay-offs versus pay-cuts, on the face of it pay-cuts seem to be the more equitable solution for both employer and employee as it limits the loss to both parties, is reversible and temporary in nature

“An interesting research shows that the western school of thought prefers lay-offs while Asian employers prefer pay-cuts especially since loyalty is considered one of the most important traits in the Eastern / Indian value system”

Now let’s look at both these options objectively

Lay-offs :

  • The company can decide who to let go and who to keep, obviously the top performers are safer than non performers in this scenario
  • Lay-offs not only reduces wages but also other costs associated with employees, overheads and some fixed costs too, it also lessens staff related liabilities /expenses such as insurance, gratuities, etc
  • From the employee’s point of view this is the worst case scenario exacerbated by their financial obligations like mortgages / loans / reduced investments for their future planning, reduced spending on essentials, etc
  • This process is inherently secretive and plagued with rumors. Companies release little or no details while planning such actions but the lives of each of us may be greatly impacted
  • Lay-offs could also mean loss of sensitive, proprietary data via laid off disgruntled employee(s) which could prove to be very expensive in the long term.

Pay-cuts:

  • The company is able to reduce cost but not eliminate it altogether, there is also an added burden on the company to retain the not so productive employees in the business
  • During times of prolonged uncertainty and subdued business climate, pay-cuts could at best be a temporary solution as long as the employers are able to sustain the added financial burden
  • Builds loyalty with the employees as they see their employer as caring and generous, this in turn could increase productivity in the long term ( eg: The Tata Group )
  • There is also a possibility that top performers may get de motivated and look for options assuming that jobs are still available during these periods
  • Between the 2 options pay-cuts is seen as the more equitable solution to both the parties albeit at a higher cost to the employer.

Surprisingly there is a 3rd option emerging across India’s start ups ; that of employee sharing ………………. more on this at a later time

Let us know your thoughts in the comment box, we always like a new perspective

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