Welcome to taking a 10% pay cut

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This is interesting. Volt, one of Microsoft's major job shops, just uh, asked their employees to take a 10% pay cut:

We have evaluated all pay rates for our Microsoft agency temporary workers and have concluded that we will be asking each of you to share in these measures by accepting a 10% reduction in your pay rate. These reductions are very difficult for Volt to implement since we value each and every one of you; however this is mandatory in order to continue your assignment at Microsoft and to respond to this economic environment.

We want to support you in continuing your assignment at Microsoft and respectfully ask that you respond by going to the upper left hand corner of this email under the ?Vote? response option and select, ?Accept? by close of business Tuesday, March 3, 2009. By accepting you agree to the pay adjustment in your pay rate. Volt has prepared a formal written amendment to your employment agreement for your signature and will execute this amendment in your scheduled meeting.

That's sure a delicate way of putting it. If it's "mandatory", than you're not "voting", but rather you're simply accepting an ultimatum: "take a 10% pay cut or lose the work." I'm not saying that Volt has done something wrong, but it's not like people are going to be somehow fooled into thinking they're voluntarily taking one for the team.

6 Comments

Interesting fact: Volt is happily helping to create deflation in the USA, which is what the economics fear most in the current situation.

Cutting salaries have far reaching effects, and it's not good for the economy. Considering how highly the USD is valued at the moment I don't think increasing the value further is anything that should be encouraged.

So, from a larger perspective then "Volt wants to earn 10% more money" they are doing something wrong.

One comment: the Microsoft help manual calls any clicky button in an Outlook email a "voting" button. So they may just have been using a pseudo-technical term, not implying that it was an actual vote. After all, chances are good they spent some time with that manual while constructing the email, since that feature is kind of obscure.

@Student: Would it be better if 10% were fired, and the remainder kept at full salary? If you read the original article, this is not Volt deciding to increase their profits, Microsoft is reducing what Volt is paid instead of firing more contractors.

Indeed; a 10% pay cut is better for the economy and for the company than a comparable layoff. I like this approach.

As to "fooling" people... I don't think anyone is fooled, per se, but it's been shown to have a psychological advantage to giving people some overt action for this, and even to spin it as a "choice", even if it's Hobson's choice. People know the reality. Even so, it's better for morale to make it seem collaborative on the surface.

Our minds are complex and mysterious things.

It would be better for the economy in general to fire 10% than to drop the salaries 10%.

In both cases the amount Microsoft pays drops 10%, but if they fire employees these employees will get their money some other way. So, unless the new jobless all suicide, they will still contribute to the economy. Even if they earn less it will limit the total loss.

Consider the optimal situation: Microsoft fires 10% of their workers, but get the same amount of work done (It's an efficiency increase of 10% for Microsoft) and all these workers finds new jobs with the same salary as they had before. Monetary flow is unchanged, while more is being produced.

And the worst case: Microsoft fires 10% of their workers, their productivity drops 10% and these workers doesn't earn any money. 10% loss in the monetary flow.

Dropping the salaries 10% will (most likely) not have any effect on the productivity of Microsoft, while it will decrease the monetary flow 10%.

There are plenty of other factors, but from an inflation perspective dropping salaries will have a larger impact on the inflation than people going jobless.

Dropping salaries on a large scale is a death spiral you do not want to experience. So unless you feel that Microsoft employees are badly overpaid for their productivity you should consider this worse than Microsoft firing 10% of their employees.

(Yes, I know it's just 10% of the volt employees at Microsoft, but the argument still holds.)

Employee salaries should swing a lot more. Increase in the times of success, decrease in times of trouble. But employees resist salary reductions fiercely. This can be taken care of with inflation: it makes reducing an employee's real wages simple, by simply not increasing them (or increasing them less than inflation).

Any Volt employees reading this should know that they are free to refuse a pay cut, and can file for unemployment benefits on the difference between their old wages and their new wages. (NB: I am not an employment lawyer, and especially not one in Washington state.)

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