Companies usually avoid reducing base pay for fear of demoralizing staff and undermining productivity. But not in this downturn
To cut labor costs, Ari Bousbib has tried almost everything. The president of United Technologies' (UTX) $34 billion-a-year commercial businesses has frozen hiring, deferred pay increases, and required some executives to take a week of unpaid leave. His company is getting rid of more than 11,000 jobs this year. But one thing he refuses to consider: direct cuts to salaries. "Across-the-board pay cuts have an impact on morale," he says, "and it is very difficult to rebuild motivation."
But Bousbib's thinking is not as universal as it once was. For decades, reducing salaries was anathema to managers. Employers could cut bonuses, eliminate raises, and even slash benefits, but an employee's base pay was sacrosanct. "It has always been off limits," says Ken Abosch, who heads up the North American compensation practice at human resource consultancy Hewitt Associates (HEW). "The rationale has always been that it creates very deep emotional scars and very concerning issues about morale, distraction, and productivity."
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