How Management Pay-cuts Can Replace Lay-offs? India’s Mukesh Ambani is leading the way!
You must read about the announcement from Mukesh Ambani’s Reliance Hydrocarbon division about the pay cuts. Hydrocarbon division is affected by the oil prices as oils demand literally collapsed. It’s Jamnagar Refinery has cut the crude processing by 24% given the reduced demand.
But instead of layoffs, Mr Ambani has led the way - something companies round the world should follow. It is remarkably different than how corporates have reacted during 1987, 2000 or 2008. Here are it’s salient points:
Mr Ambani decided to forgo all his compensation until salary cuts are in place.
Board of Directors will take 30-50% pay cuts
Employees making above INR 15 lakhs (~$20K), will take about 10% pay cuts.
Employees making below this, will not have any cuts.
While the demand will come back from current lockdown levels, they will be never same, not only for hydrocarbon processing, but most all industries. Even the groceries, pharmaceuticals and PPE will see deceleration after the hording that happen in these pandemic months.
Given these challenges, companies do face a conundrum. Should they lay-off the well trained employees to save necessary cash flow to survive or take the risks of carrying clearly extra capacity, given the slow demand that expected over next few months.
As an ex-entrepreneur, I think Mr Ambani has led the way. Instead of reducing or laying off employees, now is the time to lead to a new world! Here is my suggestion:
No pay cuts or laying off of employees below INR 5 Lakhs Annually.
All employees making INR 5-10 lakhs, accepts a 10% pay cut.
All employees making INR 10-15 lakhs, accepts a 15% pay cut.
All employees making INR 15-25 lakhs, accepts a 20% pay cut.
All employees making INR 25-50 lakhs, accepts a 30% pay cut.
All employees making INR 50-100 lakhs, accepts 40% pay cut.
All employees above INR 100 lacks accepts a 50% pay cut.
Most Executives can afford to take a pay cut, preferably like Mr Ambani to INR 0. Remember, there is nothing more headline clincher than 100%.
Why should employees accept the pay cut- simple. It’s going to be a Russian roulette, otherwise, in terms of who gets laid off and who stays. Even worst, we are already in recession and most likely entering a depression for at few years. So salary cuts or rehiring lower salaried employees is around the corner.
i do understand that companies with no income will have trouble paying any salaries. It’s whole different blog.
If you are a hot company whose products everyone needs in this pandemic, why should employees take a pay-cuts? Simple - most charities such as local Soup Kitchens, Schools and Homeless Shelters need this money now more than ever. You will be living hero now! Also, chances are everybody soon will be doing whatever you are doing now. So being compettive will help.
A fair question would be what would companies will get in return? A great answer depends on what you choose to do with these extra employees.
These pandemic times are going to change your business models for ever. As you need your part of the team to support your reduced operation, you will benefit exponentially by dividing rest of the team into small venture groups and give them a challenge how to innovate for current situation. Adjusting to the new reality fast will be not only key for survival, but also for future leadership.
A lesson that is reverberating is that all countries must become self-reliant in necessary goods, whether PPE, medicine or food. This creates a huge opportunity for existing companies. While improving business model will be a survival strategy, creating a venture challenge for new revenue ideas that cover these self-reliance will be the game changer. Give them a goal- if a team comes up with an idea in next two months and implement it in another four months. A quick tip- look for your supply chain integration - upward or downward. And ultimate goal will be to allow them to spin out as a new independent venture. I am sure CFOs can do this maths well.
Innovation always happens during the roughest of the hours. Maths look impossible at those time. But through small steps, giant leaps get discovered. It’s time to take those small steps and the maths will come through for humanity. It’s time to decide how you want to your story to be written. That’s what history will be!