The Right Way to Handle Reductions in Pay and Bonus

Posted on February 2, 2012.

Morgan Stanley CEO, James Gorman, recently stated that complaints about pay cuts and bonus caps were naive. He was clearly messaging that if you don’t like it-leave. Admittedly, with Occupy Wall Street leading the charge against banks and bankers, most people may be in the Gorman camp with zero empathy for the disgruntled Morgan Stanley employee. But is telling your entire employee base to lump it or leave it, really the right way to reward and recognize top performers in a challenging environment?  How would you feel if..

you worked hard all year long and got zero recognition and negligible reward?  And then add to that your boss telling you that you can suck it up or leave. Surely there are better ways to communicate a tough message and still make your employees feel valued. Why not try something a little more positive:

  • Set expectations early on.  As soon as you realize that bonus and salary cuts need to be made, tell your staff immediately.  Explain the current financial results and the potential outcome if cuts are not made. Make everyone realize that it’s not management vs., employee but about the company results.  Be transparent about the numbers, so everyone fully understands the reasons behind the decisions. Waiting until the last minute hoping to retain your best employees demonstrates a lack of respect, which will exacerbate your problem.
  • Create an environment where venting is allowed.  If you have to deliver a tough message, at least allow people to be human and express their disappointment.  The attitude expressed by Mr. Gorman of “take it or leave it” creates a culture of fear and disloyalty.  While some people may feel they have no place to go right now, when the economy improves, your best employees will be the first ones out the door.
  • Find other ways to recognize and reward top performers. You can’t minimize the impact of a pay or bonus reduction, but there are other ways to recognize your top employees. Get them exposure to the CEO or executive management team through task force work. If you’re being asked to make a presentation to this team, invite them to co-present with you. If you’re in a small company or managing a remote team, create your own awards like the Oscar and have some fun with the whole team. Get their minds off the bad news for a while.
  • Focus on the future. What’s done is done. After letting everyone vent, get your team to focus on the year ahead. What results are needed to get back on track? How can your group contribute to the overall results of the company? Establish goals and metrics so everyone can stay focused on the prize.  Make sure everyone realizes you’re in this thing together.

Managing and leading others in the face of adversity and challenge is not easy.  Communicating news that you know is disappointing makes you want to rethink your career. But if handle it well, you create an environment of optimism and build loyalty that will help turn the tide.