Budget Cuts are killing workers Part 2.

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Part 2

  • “We wanted to show our people that it was a tough economic time, but that the corporate office was going to take the first hit,” says Sysco spokesman Mark Palmer. While Palmer won’t comment on the financial calculus involved, Wright suggests that Sysco’s call to trim back executive pay was based on morale reasons rather than the need to slash costs — and handing out increases to so many others suggests that it cost a lot more than it saved. While companies can often save some money with this tactic, the real power of top-level salary cuts is symbolic. “It reaffirms the message that we’re all in this together,” says Ken Pinnock, director of Denver-based HR Services Group at Mountain States Employers Council Inc. “We saw this happen during the downturn after 9-11.”
  • Cutting executive pay as Sysco did is a tactic that can be used at nearly any company, but it’s rare because most execs won’t volunteer to cut their own salaries, says Greggory Warren, an equity research analyst with Morningstar. But it was a savvy move for Sysco, whose operation is fairly decentralized, making it difficult to communicate a unifying message. With the salary rebalance, Sysco employees across the nation could find evidence that they were appreciated in their own pay checks.
  • Executives decide to cut their salaries to get their payroll “where it needs to be,” says Lane Tranou, a Houston-based manager of benefits and compensation with Society for HR Management. The tactic is smart, she says, adding that pay cuts will get companies through hard times, and executives can receive bonuses in future years to make up for what they lost.
  • Caution: Trimming executive pay may also act as an omen that more cuts are soon to come, says Bob Cartwright, president and CEO of Intelligent Compensation LLC. “The gesture’s nice, but it’s not going to necessarily make everybody feel great,” he says.
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