Amidst mass layoffs by tech gains and startups, former co-founder and MD of BharatPe, Ashneer Grover, suggests a salary reduction of about 25 percent-40 percent as an alternative.
“I just don’t get why Founders won’t go down that path. Everything gets repriced - energy, capital, technology. Why not people…?” he said in a LinkedIn post.
However, industry leaders are divided over the practicality of his suggestion in current times. While some feel it's a knee-jerk reaction rather than a long-term plan, others support the idea, saying it’s a sour soup to avoid fever.
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Employees can be retained on a reduced salary, temporarily, till the company achieves its financial target, said Pratik Vaidya, MD & CVO (Chief Visionary Officer), at consulting firm Karma Global.
He said the impact of a pay modification will, no doubt, be heavily influenced by the company’s culture. For example, if you have a relatively smaller number of employees who understand that a pay cut is a last resort to staying in business, they’ll probably be far more willing to make the sacrifice to save the business – and their jobs.
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If an employer is considering reducing pay to employees as an alternative to layoffs, Vaidya feels he should carefully review all the ramifications. These include how a pay rate reduction would influence workplace morale, and, hence, employee productivity and the possibility that your best people will take another job elsewhere.
As COVID-19 forced companies, especially in the tech industry, to ‘overpay’ some workers, industry experts believe they were bound to accept corrections.
“If the salary of a techie, pre-COVID, was 12 LPA (lakh per annum) and later reached 20 LPA because of the bubble, it's not possible that the entire career of that person will go in the same trajectory,” said Atulya Bhatia, co-founder, Adeera Packaging.
“There will be a correction at some point of time and people who got 100 percent jumps in salaries without adding to their skill sets should accept corrections in their career path,” he added.
Anuj Agarwal, founder & CEO of recruitment firm Zyoin, recommends that while companies can offer reduced salaries, they can also compensate with equity, if possible.
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“Ashneer’s approach is more practical, as laying off is not just a breach of trust between employees and employers. It also impacts the morale of other employees,” he said.
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On the other end of the spectrum, experts feel the very nature of employment is changing as a result of technology and intensifying global competitiveness.
“Many companies usually resort to episodic restructuring, salary cuts and frequent layoffs, yet all these can have long-term negative effects on employee engagement and business profitability,” said Vicky Jain, CEO and co-founder of HR tech platform uKnowva.
From a cash flow viewpoint, he feels cost-cutting through layoffs may make sense. However, Jain said it's merely a temporary fix that comes with hazards in the long run as companies that skirt layoffs are more likely to succeed over the long run.
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“Human capital is one of the most critical assets a company has. Protecting and maximising investments in human capital should be a crucial component of any plan to get ready for a downturn,” he added.
Echoing the same, Sumit Sabharwal, CEO of TeamLease HRtech, said pay cuts could bring down the morale of employees and will impact an employee's experience, productivity, and career progression.
After over 16 years of working at Google, software engineering manager Justin Moore said he was let go in the most abrupt way -- no other communication except the sudden deactivation of his account.
“When tech giants like Google and Microsoft are laying off employees who worked for over 15 years with loyalty, it makes no sense to cut salaries by 30 -40 percent and expect employees to stay back,” said Manoj Shastrula, Founder and CEO at SaaS platform SOCLY.
“The vicious cycle of EMIs, loans, and expenses will not let them, too. Also, for every cash-crunch company, there is a cash-rich counterpart,” he said, adding, “These laying off companies are the first ones to hire new ones.”
Other alternatives
To avoid layoffs, industry leaders suggested various other alternatives. One such was to always try to outsource or take gig workers on a project-by-project basis by paying them higher.
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“Once a project is finished, there is no compulsion to continue,” said Vaidya of Karma Global. He said the other ways are to induct lower-level tech employees through the National Apprenticeship Promotion Scheme (NAPS) reducing the burden of “overall CTC by 45 percent”, in addition to the contribution given by the government.
SOCLY’s Shastrula also recommended hiring from outsourcing firms that have huge pockets so that companies can let go of people when not required.
