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Gyro
15-07-2013, 01:39 PM
Hi All,

A bit of background on the company before I move on to the point. We are a Junior explorer and facing some major challenges with the project currently and the in the foreseen future. We have Senior leaders in the organisation that are paid very high Remuneration Packages. There are legacy issues to be mindful of as the previous CEO aligned these salaries to operating organisations within the 75th percentile of the industry in which we work. A smart move at the time as the project was full steam ahead as this did give us a very competitive advantage not to mention how exciting the project is. We have some very good technical people in the organisation too.

We are undergoing a review of each role in the org to see if we can let go of some staff while we work out where to go from here, the other option I am looking into is...

..................................

How difficult would it be to impose a % pay cut to the most senior positions in the organisation until the project is more certain? We are trying to implement performance based incentives however proving difficult when you don't know if you have a project. I do recall during the GFC the organisation i worked with previously did try to implement this across the board but they weren't successful and I do know of other organisations that did implement salary cuts but I am unsure how they succeeded. I know changes need to be through a consultative process however it's not too likely that an employee would volunteer or be happy with a salary cut under most circumstances it doesn't matter the financial position the organisation is in.

I have been looking into cutting back hours to part time if all too risky as there is still work to be done.
Anyway does anyone out there have any tips on this?

I look forward to a response

Tasman McManis
15-07-2013, 02:55 PM
Hi Gyro

It is usually a little easier to reduce the pay of senior people as they are often closer to the real numbers although you didn't mention any quantum. Anything up to say 10% may not be an issue where as figures above this level may start to cause hardship. Having said that, although harsh, a pay reduction is better than a loss of job for most people but I'm not a fan of this type ultimatum if you can avoid it.

If you do want to reduce pay it is better to have a long term plan worked out even if there is volatility in the operations. Say we said we will reduce pay for 12 months by 10% for example with clear reasons, metrics and monthly reviews. Do you want to make the reduction permanent or will the reduction stop after period of time if certain criteria are met?.

Other options include a pay freeze, change the market pay point to the median with increased money at risk - this type of change could be handled over a couple of pay cycles, make sure people take leave to reduce balances, as you mentioned you could look at trade offs between hours and time-off. A day a week is a 20% which could be a struggle for some. Given the seniority of the people involved, engaging directly with them to see if they have any ideas could also be important. As I mentioned, hopefully they are aware of the gravity of the situation and understand that there needs to be some cost reduction.

I'll be interested to hear what approach you end up adopting and the response of the staff.

Regards Tasman


Hi All,

A bit of background on the company before I move on to the point. We are a Junior explorer and facing some major challenges with the project currently and the in the foreseen future. We have Senior leaders in the organisation that are paid very high Remuneration Packages. There are legacy issues to be mindful of as the previous CEO aligned these salaries to operating organisations within the 75th percentile of the industry in which we work. A smart move at the time as the project was full steam ahead as this did give us a very competitive advantage not to mention how exciting the project is. We have some very good technical people in the organisation too.

We are undergoing a review of each role in the org to see if we can let go of some staff while we work out where to go from here, the other option I am looking into is...

..................................

How difficult would it be to impose a % pay cut to the most senior positions in the organisation until the project is more certain? We are trying to implement performance based incentives however proving difficult when you don't know if you have a project. I do recall during the GFC the organisation i worked with previously did try to implement this across the board but they weren't successful and I do know of other organisations that did implement salary cuts but I am unsure how they succeeded. I know changes need to be through a consultative process however it's not too likely that an employee would volunteer or be happy with a salary cut under most circumstances it doesn't matter the financial position the organisation is in.

I have been looking into cutting back hours to part time if all too risky as there is still work to be done.
Anyway does anyone out there have any tips on this?

I look forward to a response

Cottoneyes
15-07-2013, 03:13 PM
Hi Gyro,

My experience in these situations is to reduce the guaranteed remuneration and offset it with higher variable remuneration, ie, reduce the base salaries and increase the bonus plans / new bonus plans. Ensure the bonus plans are thought out and mostly tied to the overall business results with a small portion tied to their performance. Timing may be an issue as well, bonuses at this level may have traditionally been paid annually, if the cut is big you may need to look at quarterly or similar timing to assist with the employees cashflow.

Bit easier to sell than asking an employee to do the same / more for less in the hand.

Gyro
15-07-2013, 03:18 PM
Thanks Tasman

Your feedback is very helpful. You are looking northwards of $330,000 total fixed remuneration with up to a 10% reduction in their pay dependant on how much over this TFR they are. It was intended to be permanent and reviewed based on achievement of company goals and of course the success of the project. We are enforcing a pay freeze for all other positions.

The angle I was thinking of taking was to indicate that we are no longer able to benchmark ourselves at the mid point to 75th percentile of the market but need to reduce this to 25th percentile which is more reflective of the financial position of the company and the fact that we have no revenue at this stage of the project.
I think your approach with monthly reviews is a great idea and also asking the Senior Leaders for their input. I might throw around a few ideas to the board during the week to see what they say also.

So I am understanding that we can implement something like this with no major issues providing it is done the right way?

thanks again :-)