What's going on with salary reductions? Data from across industries

1. Pay Reduction Data during
the COVID pandemic
June 2020

2. Salary Reduction
 Reduction of Work Week
 Example: 4 day work week, with a corresponding 20% reduction in pay.
 Courtesy of Shaw Law Group PC
 If employee job duties are altered, need to pass “exempt duties” test under
applicable state and federal laws
 If reclassifying to nonexempt, new work rules will have to be adhered to
(Timekeeping, Meals, Rest breaks etc)
 Courtesy SHRM
 May be FLSA compliance impacts as well to consider before implementing
 Courtesy WolrdAtWork
 Other impacts at well: Retirement Plan contributions, Benefit Plans,
Collective Bargaining issues, Employment Agreements, applicable state
notices, etc
 Courtesy Foley & Lardner LLP

3. Salary Reduction
 61% of companies in Russell 3000 Index applied pay reductions to the
base salaries of senior managers who make less than top-tier
executives.
 11% of all companies in the index announced base pay cuts between
March 1 and April 24.
 These announcements peaked in early April, but more cuts feared as
country moves further along in the pandemic
 Courtesy of Fast Company

4. Salary Reduction
 Example:
 One company instituted 15-25% pay cuts for senior managers, with lower levels
reductions of 10%.
 Employees earning less than $50k didn’t have salaries reduced
 Employees generally pleased to keep their jobs
 Employees received Friday afternoons off as an offset enticement
 When business needs increase, it will be easier to ramp up production than if mass layoffs
were instituted
 Courtesy of NY Times 5/24/20

5. Salary Reduction
 Of 301 largest companies surveyed, 9% have instituted
non-executive employee pay cuts
 Courtesy of Just Capital

6. Salary Reduction
 601 companies have reduced salaries during the pandemic
 Notable companies such as LuluLemon Athletica Inc., JetBlue Airways Corporation,
Urban Outfitter’s Inc, and Lands’ End Inc.
 11% of Russell 3000 Index announced executive-based pay cuts since
COVID began.
 Peak time for cuts was early April
 More than 60% of cuts came from hard hit industries (Hospitality, Retail, Health
Care and IT)
 Consumer Discretionary sector was hardest hit for reductions
 Sectors not significantly impacted include Materials, Consumer Staples, Financials,
and Utilities
 Most announcements have been at mid-market sized companies
 Of the announced cuts, 1/3 of CEO’s won’t receive base salaries in 2020

7. Salary Reduction
 Other Executives beyond the C-Suite are having their salaries cut as
well
 A lot of these executive cuts have been “Tiered” reductions
 Though not as extensive as salary reductions, some executives are
seeing annual bonus payments either cut or eliminated
 All information on these 2 slides courtesy of The Conference Board, in
collaboration with Semler Brossy and ESGauge Analytics

8.  Public companies implementing pay reductions rather than layoffs
 Differs from 2008 financial crisis when layoffs were more prevalent than senior
leader pay cuts.
 151 companies surveyed, and 143 implemented CEO pay cuts
 Over half of the companies surveyed had salary reductions for CEO’s and other top
executives
 16% had reductions for other salaried employees
 Of the companies implementing salary reductions, 66% said the cuts were
“temporary” or “indefinite” and didn’t have a specified end date
 Most impacted industries include airlines, transportation and hospitality
 Courtesy of HR Dive

9. Salary Reduction
 Company-Specific data
 GM
 6,500 salaried employees furloughed, at 75% pay.
 Senior Execs had pay cuts of 5-10%, with 20% of salaries deferred, to be paid out at a later date
 Ford:
 Deferred salaries of top 300 Executives
 Buzzfeed:
 Graduated salary reductions in April/May.
 Salaries of less than $65k – 5% pay cut
 Salaries over $125k – pay reductions greater than 10%
 Executive salaries cut between 14-25%
 Courtesy of SHRM

10. Salary Reduction
 Company-Specific data (Continued)
 Occidental Petroleum Corp
 Temporarily cut US salaries up to 30%
 Cheesecake Factory Inc
 Cut pay for Bakery/Corporate workers by up to 20%
 Steelcase Inc
 Some US salaried worker’s had base pay and hours temporarily reduced to 50%.
 Larger cuts for higher-paid workers
 Courtesy of Wall Street Journal 4/3/20

11. Salary Reduction
 Company-Specific data (Continued)
 AEG (2nd largest Concert Promoter in US)
 Implemented furloughs and salary reductions
 More savings needed and company had to resort to layoffs.
 Company didn’t see live concerts occurring until 2021 – thus layoffs were deemed
necessary
 Courtesy LA Times 6/8/20

12. Salary Reduction- Summary and Helpful
Tips
 What we are seeing:
 The trend is to tier cuts to employees based on salaries
 Large and midsize companies in significant numbers are taking actions
to reduce salaries of employees
 Executives (C suite) are taking the largest cuts especially in largest
and top companies. Ranging from cutting base pay entirely to a range
of 20%-30%
 Higher level directors and managers are taking cuts between 15-30%.
 Employees above $50k to 100k are seeing cuts from 10% to 15% in rare
instances 20%

13. Salary Reduction- Summary and Helpful
tips
 Give as much time for employees to adjust before enacting changes- communicate if this is
temporary or not and when restoration can be expected
 Do not brag about saving jobs as in the future you may have to
 Consider new work schedules four days paid, one day furloughed in the week for lesser paid
employees
 Being fair does not mean everyone sees the same % cut; tier cuts based on salary levels-
Executives take the lead with largest percent cuts
 Cut Bonus, profit sharing, variable pay plans first to reduce impacts to
 Move commission employees to base pay draws commensurate to territory pipeline and
outlook.
 Look to other cuts in the package first such as Health Care Subsidies over 75%,
 Other areas , 401(k) match suspensions), overtime hours, travel expenses, offsite and on-line
education expenses, company car allowances,