Big Tech and financial services layoffs continue to dominate the headlines. Pressed with global inflation and economic uncertainty, many organizations are taking a defensive approach to budgets, headcounts and compensation.
To better understand the complexities of compensation and benefits during layoffs, we sat down with Tony Guadagni, Senior Principal in the Gartner HR practice, to discuss new data on how employees perceive their pay and their feelings on employers utilizing alternative pay tactics to avoid layoffs.
Journalists who would like to speak with Tony regarding this topic can contact Mary.Baker@gartner.com or Teresa.Zuech@gartner.com. Members of the media can reference this material in articles with proper attribution to Gartner.
Q: With a number of companies announcing layoffs, are employees willing to take a temporary pay cut to avoid layoffs?
A: In a Gartner survey of 10,080 employees in September 2022 only 31% of respondents said they would willingly take a temporary pay cut if it meant avoiding layoffs. Of these, Gen Z are most willing to accept a pay cut (41%), followed by Millennials (38%). Of the employees who are willing to accept a pay cut, more than half say a cut of 10% or less would be acceptable, and most employees are only willing to tolerate the reduction in compensation for three months or less.
While temporary pay cuts may alleviate budget constraints in the short term, it’s not an ideal strategy to weather a potential economic recession.
Q: With several high-profile senior executives at Big Tech organizations taking pay cuts to prevent doing further layoffs, what do employees think of these actions?
A: CEOs make, on average, about 300 times the salary of their rank-and-file employees, and employees and shareholders want to see their leaders willing to make sacrifices along with the larger organization. The same survey shows 77% of employees say Senior Executives should be willing to take a significant pay cut before they reduce headcount or make changes to employee compensation.
Q: What other factors are impacting employee’s perceptions of pay right now?
A: There are three main considerations:
- First, economic conditions have exacerbated pay sensitivity. Inflation is up in much of the world, reducing employees’ real wages and increasing sensitivity to perceived pay gaps.
- Second, the increased talent competition has created a dynamic salary landscape. According to a 2Q22 Gartner survey of 3,523 employees, employees hired in 2022 earned 17% more than tenured employees in the same role.
- Lastly, there’s an increasing amount of pay information available to employees. Gartner research shows nearly 43% of employees discuss their pay with colleagues in the same role, while 45% of employees consult third-party pay sites at least once a year.
The same survey from 2Q22 shows less than one-third of employees feel they are paid fairly, while just 34% of employees believe their pay is equitable. One of biggest conclusions from our research over the past year is that employee perceptions of pay equity aren’t rooted in compensation; instead, they are rooted in organizational trust. When employees don’t trust their employers, they don’t believe their pay is fair or equitable.
Q: In light of these shifts, how should organizations think about their Total Rewards strategy today?
A: Reductions in force and a potential recession are critical moments for organizations. Layoffs hurt employee morale, productivity and corporate reputations.
Organizations considering or implementing layoffs need to implement a separate Total Rewards team to ensure reductions in force are implemented responsibly for both those impacted, as well as remaining employees. To engage remaining employees, managers should be mindful to re-introduce and reinforce the mission, vision and values of the organization, and how those will help the organization navigate through difficult times.
Finally, to rebuild employees’ trust in the organization, and further increase perceptions of pay, HR should:
- Communicate: According to a Gartner survey of 3,200 employees in May 2022, only 38% of employees report that they understand how their pay is determined. When organizations educate employees about how pay is determined, employee trust in the organization increases by 10% and pay equity perceptions increase by 11%.
- Broaden Accountability: Most actions that create pay equity issues occur outside of the HR function and are the result of manager decisions. HR leaders need to equip managers with tools that will enable them to make equitable pay decisions while remaining responsive to the other demands of the business.
- Develop a Pay Equity Team: While Total Rewards leaders own pay equity, HR can construct a pay equity team that has broad insight into the factors that cause pay equity gaps and the authority to correct them.
If you are a member of the media who would like to speak further on these topics with Tony Guadagni, please contact Mary Baker at firstname.lastname@example.org or Teresa Zuech at email@example.com. Members of the media can reference this material in their articles with proper attribution to Gartner.