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Corporate Prima Donna: a manager/executive who is arrogant, difficult to work with, not a team player, manipulative, privileged, demanding, unreasonable, and with a high opinion of themselves not shared by others.

     Acco Brands’ (an office products supplier that laid off 500 employees last year) decided to cut its 2000 employees’ wages by 47% rather than layoff additional employees.  While such a drastic move defies conventional wisdom that lay offs are the best way to immediately reduce labor costs, I applaud Acco for taking a more constructive approach.  Rather than lose anymore of its talent, Acco decided to make a play for team unity and, if the pay reduction was done right, it was the better decision.

     As the economic crisis continues to deepen, other companies are facing the same issue as Acco: how to most effectively reduce labor costs?  If the decision is to reduce wages rather than layoff Employees, here is the Pay Reduction Blueprint to follow so the morale of the entire workforce is not destroyed in the process:

1.      Before there is a reduction in wages, there needs to be a selective layoff to eliminate The Others (20% of the workforce who should have been fired before the current economic crisis).  If the low performing members of the workforce remain employed and there is a pay reduction morale/performance will suffer.

2.      Before implementing a pay reduction, know the financial relief the Company needs to get from a pay reduction and get it.  There is only one bite at this apple.  Reducing pay a second time is a disaster for morale/performance. 

3.      There needs to be Employee buy in for the pay reduction.  This means effective communications about the need for the reduction in pay before it occurs.  Include the Employees in the process, and stress "we are all in this together."  Employees want to participate.  Let them.

4.      A drastic pay cut must be temporary.  Employees need to know that, in the future, there will be an opportunity to recover from their economic loss.

5.      The monetary sacrifice must save jobs.  After the pay reduction there can be no further layoff of Employees or Employee morale/performance will be destroyed.

6.      Really Share the Pain. If you expect Employees to accept a pay reduction and still be High Performance, the pay reduction must extend to every Employee from the President/CEO/Owner down.  However, high paid Employees need to take a greater pay percentage reduction than the Front Line Supervisors and Employees.  Employees know a reduction of half of a $250,000.00 salary does not hurt as much as a 50% reduction of a $40,000.00 salary. 

7.      There can be no Corporate Prima Donnas.  If there are Corporate Prima Donnas (see definition above) in the organization after the pay reduction, they will destroy Employee morale/performance.

     A company can do more than the six steps in the Pay Reduction Blueprint, but cannot do less and still retain the high level of Employee morale/performance necessary to keep the Company successful.

The Bottom Line: After the initial layoff of the low performers has occurred, additional layoffs erode the talent base of the Company.  In the WorkQuake™ of the Knowledge Economy, no Company can afford to lose its talent.  A pay reduction, structured and communicated in the right way, saves the Company’s talent while providing the Company with the financial relief needed to survive the economic crisis.

     What is your opinion of the best way to reduce labor costs: layoffs or pay reductions?  And how do you deal with Corporate Prima Donnas?

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