Friday, February 19, 2010
My company, which is based in New Jersey and is in the medical device industry, is in the middle of its annual compensation review process, a delight that never improves with the passage of time. It is with no small interest, therefore, that I note that local employer Bristol-Myers is freezing salaries, and even mother J&J is rolling out a giant realignment of its global compensation scheme to bring its pay in line with "local markets across our company and around the world." That would be code for pay cuts in places where J&J is at or above the top of the local market, which is probably a lot of places.
There will be more of this, and not just in the health care industry. The compensation practices at a lot of large companies got out of line during the bubble years. It is very hard to cut the pay of employees you want to retain when things are going well, even if they could not easily go elsewhere for more money, because the decision is unpleasant (and, like everybody else, most large company managers hate making unpleasant decisions) and the result will demotivate the otherwise fine employee. When times are tough, though, people will understand a cut in pay as a signal that they are not going to lose their job to save money, and that can be very reassuring.
Anonymous the First - True, I suppose, but law firms are a different animal. Lawyers work by the hour for clients, and if there are no billable hours to be had over a long period of time there is nothing to be done about that. That, and the fact that law firm partners are paying them with their own money, instead of somebody else's, and so are often quicker to make those unpleasant decisions that big company middle-managers avoid.
In the Post Cold War recession I was out of work, watching my kids at the pool with two working moms. The first was a school teacher, and she complained that she wasn't getting a raise this year. The second work for the city planning commission an she added that she did not get a raise for two years. I laughed and said, I have now been out of work for a year, I would love to be working at 80% of my old salary. That shut them up.
"When times are tough, though, people will understand a cut in pay as a signal that they are not going to lose their job to save money"
Unless you are a government employee backed by a union - not only will you still have your job, but you might also see a pay raise.
Print more, tax more. It's the government way.
The sad fact is that nobody who is actually running a business (thus placing us in direct contrast with Congress and the White House)has any idea what the loose cannons in Washington have in store for us over the next year.
That's the trouble with those who fail to lead and basically follow the weather vane in business policy. Worse yet are those that demonize American business to shift the blame from their own fiduciary incompetence.
We are in the process of rearranging the deck chairs on the Titanic!
In my career, there have always been excuses for little/no raises in good times and bad. My company kicked butt in the last 1/2 of 2009 while our competitors shut down and laid off. Executive bonuses will be gigantic. And yet, raises for the little people will be tiny. The goal is always pay just enough to retain people then shrug your shoulders when the good ones leave to get a bump. Or, just before they leave, give them a promotion and 5%. The human resources people all meet with each other or have a survey so they know what every other similar company is doing. That is how the game is played.
We lost our bonuses (15% of comp) in Q2 2008, lost vacation accrual in Q1 2009 (essentially an 8% pay cut) and have downsized 60%. Our 2009 revenues were half of 2008, but so were our losses. Not that perpetual losses are sustainable. I figure we have 2-3 quarters left if things don't turn around (I can't see how they will).
This is how companies respond to an existential threat. Governments raise prices to their customers (the taxpayers) and featherbed for their contributors and cronies. This is why, at this point, I am ready for whatever happens to our failing political system. I have little expectation that changing underwear in 2010 and 2012 will actually address the issues--if it is not already too late. We are SO far out of whack that no purely political process can bridge the chasm. 2nd American Revolution? Call out the instigator. I'm ready.
@Anon 10:21 AM
Paying too much over time. Salary, bonus and LTI are being cut 10-30 percent depending on your position and new market rates, and the DB pension plan will no doubt go away. All employees are being affected by the comp review but no one believes those at VP level and above are losing sleep.