Self-imposed pay cuts: good vs. bad — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Self-imposed pay cuts: good vs. bad

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in Leaders & Managers,Workplace Communication

In response to falling profits and outrage at their sky-high compensation, a few chief executives have made it known that they’re docking their own pay.

Stunts or acts of conscience? Employees and other stakeholders are no dummies, so let’s see how it works.

Good: Steve Appleton, chief of semiconductor firm Micron, took his $200,000 salary down to $0 in October 2001 in the face of company layoffs. Most figured the downturn in the chip business would be over in a matter of months, but it lasted more than two years. Appleton says his cut in pay jacked up his performance. “I was deeply motivated and people knew it,” he says.

Good: Diane Doubleday, a pay specialist at consulting firm Mercer, says self-imposed salary cuts do help the boss’s credibility. “Employees are the key audience,” she notes. “This is a way of signaling the seriousness of financial challenges.”

Bad: It only works, though, if you already hold some character chits and you do it the right way. Walter Young, former CEO of homebuilder Champion Industries, decided to take a 20 percent cut but failed to tell his board about it in advance. Bad move. Unhappy that they hadn’t been consulted, the directors tossed him.

Bad: And it comes with no guarantee. David Pottruck, ex-chief of Charles Schwab, took a hefty pay cut in 2001. But the markets slogged along and he isn’t exactly Mr. Charisma, so out he went. Don Carty, former CEO of American Airlines, did the same thing, tripped up in the goldbricking of his executives’ pension plans.

Real bad: Execs who live in the pay and perks stratosphere need to be clear-eyed. Eli Harari, chief of San-Disk, says it’s important for employees to see the boss “feeling the same pain that they are.”

—Adapted from “After Rejecting Pay, Some CEOs Find Less Can Be More,” George Anders, The Wall Street Journal.

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