Executive pay cut request: How to respond?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
User avatar
Topic Author
market timer
Posts: 6299
Joined: Tue Aug 21, 2007 1:42 am

Executive pay cut request: How to respond?

Post by market timer » Fri Apr 10, 2020 10:28 pm

Many companies are asking executives to take pay cuts in this environment. It is likely I'll be asked to take one, so I would like to respond appropriately. My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school. If asked to take a 50% pay cut, I'd prefer a layoff and severance, as I have a side project I'd like to pursue. Is this a reasonable position to take?

Normchad
Posts: 647
Joined: Thu Mar 03, 2011 7:20 am

Re: Executive pay cut request: How to respond?

Post by Normchad » Fri Apr 10, 2020 10:33 pm

Something I've never understood is, why do companies ever give severance? As a steely eyed capitalist, when times are tough and people need to get laid off, where do the companies suddenly find the money to pay severances?

MarketTimer, more to your question, personally I'd be willing to take a 25% paycut to help the company out. I may even be willing to take a deeper cut. I'd be more receptive if it was wide spread, and if it was explicitly meant as a way to not have to let people go. i.e. "we can all agree to take 50% pay cuts for the next 9 months OR we are going to cut 20% of our staff".

But I'd like there to be an understanding that it would be "made up to me" somehow in the future.

Best of luck to you; I'm sure this is stressful.

User avatar
Topic Author
market timer
Posts: 6299
Joined: Tue Aug 21, 2007 1:42 am

Re: Executive pay cut request: How to respond?

Post by market timer » Fri Apr 10, 2020 10:35 pm

Normchad wrote:
Fri Apr 10, 2020 10:33 pm
Something I've never understood is, why do companies ever give severance?
In my case, the severance is a contractual obligation.

User avatar
SevenBridgesRoad
Posts: 711
Joined: Sat Jul 07, 2018 12:14 am
Location: Within Pacific Ring of Fire

Re: Executive pay cut request: How to respond?

Post by SevenBridgesRoad » Fri Apr 10, 2020 10:49 pm

market timer wrote:
Fri Apr 10, 2020 10:35 pm
Normchad wrote:
Fri Apr 10, 2020 10:33 pm
Something I've never understood is, why do companies ever give severance?
In my case, the severance is a contractual obligation.
Severance pay was a standard part of any employment agreement I signed as an executive. I was being recruited away from a stable job situation into a somewhat unknown. Why would I jump? And, the board in particular wanted me to undertstand I could fearlessly push the organization forward and have a safety net.
Retired 2018 age 61/Variable Percentage Withdrawal method/One fund: VTINX all accounts/No mortgage,debt/Good enough | "Not using an alarm is one of the great glories of my life." Robert Greene

User avatar
SevenBridgesRoad
Posts: 711
Joined: Sat Jul 07, 2018 12:14 am
Location: Within Pacific Ring of Fire

Re: Executive pay cut request: How to respond?

Post by SevenBridgesRoad » Fri Apr 10, 2020 10:51 pm

market timer wrote:
Fri Apr 10, 2020 10:28 pm
Many companies are asking executives to take pay cuts in this environment. It is likely I'll be asked to take one, so I would like to respond appropriately. My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school. If asked to take a 50% pay cut, I'd prefer a layoff and severance, as I have a side project I'd like to pursue. Is this a reasonable position to take?
If you think it is reasonable, and the company is worth hanging with, do it! Sounds like a fair trade.
Retired 2018 age 61/Variable Percentage Withdrawal method/One fund: VTINX all accounts/No mortgage,debt/Good enough | "Not using an alarm is one of the great glories of my life." Robert Greene

fatFIRE
Posts: 346
Joined: Sat Feb 15, 2020 10:44 pm

Re: Executive pay cut request: How to respond?

Post by fatFIRE » Fri Apr 10, 2020 10:53 pm

market timer wrote:
Fri Apr 10, 2020 10:28 pm
Many companies are asking executives to take pay cuts in this environment. It is likely I'll be asked to take one, so I would like to respond appropriately. My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school. If asked to take a 50% pay cut, I'd prefer a layoff and severance, as I have a side project I'd like to pursue. Is this a reasonable position to take?
You're being paid >$1mil a year. Boohoo for pay cut... Come on a little perspective here ok?

But I will admit, if I were you, I would also balk at a 50% pay cut.

User avatar
Topic Author
market timer
Posts: 6299
Joined: Tue Aug 21, 2007 1:42 am

Re: Executive pay cut request: How to respond?

Post by market timer » Fri Apr 10, 2020 11:04 pm

fatFIRE wrote:
Fri Apr 10, 2020 10:53 pm
You're being paid >$1mil a year.
My target compensation is actually $700K, but it's mostly variable. I'm assuming pay will fall far short of target due to the economy. Could easily end up around $200K this year after pay cuts.

TIAX
Posts: 1326
Joined: Sat Jan 11, 2014 12:19 pm

Re: Executive pay cut request: How to respond?

Post by TIAX » Fri Apr 10, 2020 11:09 pm

market timer wrote:
Fri Apr 10, 2020 10:28 pm
Many companies are asking executives to take pay cuts in this environment. It is likely I'll be asked to take one, so I would like to respond appropriately. My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school. If asked to take a 50% pay cut, I'd prefer a layoff and severance, as I have a side project I'd like to pursue. Is this a reasonable position to take?
Would a pay cut violate your employment agreement if you didn't agree to it?

Jags4186
Posts: 4873
Joined: Wed Jun 18, 2014 7:12 pm

Re: Executive pay cut request: How to respond?

Post by Jags4186 » Fri Apr 10, 2020 11:09 pm

If you have a contract I’d agree to either 0% pay cut or the contractually obligated severance. Companies can get free money from the government. I suggest they focus their efforts on that.
Last edited by Jags4186 on Fri Apr 10, 2020 11:11 pm, edited 1 time in total.

User avatar
Topic Author
market timer
Posts: 6299
Joined: Tue Aug 21, 2007 1:42 am

Re: Executive pay cut request: How to respond?

Post by market timer » Fri Apr 10, 2020 11:11 pm

TIAX wrote:
Fri Apr 10, 2020 11:09 pm
market timer wrote:
Fri Apr 10, 2020 10:28 pm
Many companies are asking executives to take pay cuts in this environment. It is likely I'll be asked to take one, so I would like to respond appropriately. My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school. If asked to take a 50% pay cut, I'd prefer a layoff and severance, as I have a side project I'd like to pursue. Is this a reasonable position to take?
Would a pay cut violate your employment agreement if you didn't agree to it?
Yes

EddyB
Posts: 1361
Joined: Fri May 24, 2013 3:43 pm

Re: Executive pay cut request: How to respond?

Post by EddyB » Fri Apr 10, 2020 11:12 pm

market timer wrote:
Fri Apr 10, 2020 10:35 pm
Normchad wrote:
Fri Apr 10, 2020 10:33 pm
Something I've never understood is, why do companies ever give severance?
In my case, the severance is a contractual obligation.
Does the same contract give you a basis to claim constructive termination for a reduction in pay or hours?

ARoseByAnyOtherName
Posts: 1000
Joined: Wed Apr 26, 2017 12:03 am

Re: Executive pay cut request: How to respond?

Post by ARoseByAnyOtherName » Fri Apr 10, 2020 11:17 pm

market timer wrote:
Fri Apr 10, 2020 10:28 pm
Many companies are asking executives to take pay cuts in this environment. It is likely I'll be asked to take one, so I would like to respond appropriately. My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school. If asked to take a 50% pay cut, I'd prefer a layoff and severance, as I have a side project I'd like to pursue. Is this a reasonable position to take?
I really don’t understand the question.

You have decided that if asked to take a 25% pay cut you find that acceptable and would happily accept it.

You have also decided that if asked to take a 50% pay cut you want a layoff and severance.

So, it seems a better question to ask is “if I’m asked to take a 50% pay cut, what’s the best way to get a layoff and severance?”

Does that make sense?

softwaregeek
Posts: 407
Joined: Wed May 08, 2019 8:59 pm

Re: Executive pay cut request: How to respond?

Post by softwaregeek » Fri Apr 10, 2020 11:20 pm

I am being asked to take a 10 percent pay cut, with all Members of the management team doing so. However, this is a startup and the top managers collectively are incented to make it work. We get nothing if the company fails and stand to make a good bit of money if we are successful. We have been informally promised additional option grants down the line and a repricing of my existing options. Of,course we do won’t cut hours, it is not In our culture and we love our work.

User avatar
Watty
Posts: 19730
Joined: Wed Oct 10, 2007 3:55 pm

Re: Executive pay cut request: How to respond?

Post by Watty » Fri Apr 10, 2020 11:26 pm

market timer wrote:
Fri Apr 10, 2020 10:28 pm
My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school.
That does not make a lot of sense to me. If you are less productive when working from home and cut your hours to 30 hours a week then that would be doubly less productive and might be comparable to only working 20 hours a week in the office. When you say "less productive" does that mean something like fewer billable hours?

When you are working from home you also do not have commute time and you are also likely not traveling a now.

You also make enough that you could afford to hire someone to come in and take care of the kids during the day when you are working from home.

It might vary by industry but I unless they were paid hourly few people I have known consistently worked just 40 hours a week.

phantom0308
Posts: 222
Joined: Thu Aug 25, 2016 6:52 pm
Location: Rochester Hills, MI

Re: Executive pay cut request: How to respond?

Post by phantom0308 » Fri Apr 10, 2020 11:31 pm

Normchad wrote:
Fri Apr 10, 2020 10:33 pm
Something I've never understood is, why do companies ever give severance? As a steely eyed capitalist, when times are tough and people need to get laid off, where do the companies suddenly find the money to pay severances?

MarketTimer, more to your question, personally I'd be willing to take a 25% paycut to help the company out. I may even be willing to take a deeper cut. I'd be more receptive if it was wide spread, and if it was explicitly meant as a way to not have to let people go. i.e. "we can all agree to take 50% pay cuts for the next 9 months OR we are going to cut 20% of our staff".

But I'd like there to be an understanding that it would be "made up to me" somehow in the future.

Best of luck to you; I'm sure this is stressful.
The company will often lay people off to reduce long term costs in order to improve future cash flow. Paying 2 months of salary is fine since they can show investors they’ve reduced yearly costs by the cost of their salary. Severance is also an easy way to make employees sign they won’t take legal action against the company for the layoff. Some states don’t recognize the validity of that though.

User avatar
Topic Author
market timer
Posts: 6299
Joined: Tue Aug 21, 2007 1:42 am

Re: Executive pay cut request: How to respond?

Post by market timer » Fri Apr 10, 2020 11:32 pm

EddyB wrote:
Fri Apr 10, 2020 11:12 pm
market timer wrote:
Fri Apr 10, 2020 10:35 pm
Normchad wrote:
Fri Apr 10, 2020 10:33 pm
Something I've never understood is, why do companies ever give severance?
In my case, the severance is a contractual obligation.
Does the same contract give you a basis to claim constructive termination for a reduction in pay or hours?
I'm not sure. Would need a lawyer to know my rights.

User avatar
Topic Author
market timer
Posts: 6299
Joined: Tue Aug 21, 2007 1:42 am

Re: Executive pay cut request: How to respond?

Post by market timer » Fri Apr 10, 2020 11:33 pm

ARoseByAnyOtherName wrote:
Fri Apr 10, 2020 11:17 pm
market timer wrote:
Fri Apr 10, 2020 10:28 pm
Many companies are asking executives to take pay cuts in this environment. It is likely I'll be asked to take one, so I would like to respond appropriately. My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school. If asked to take a 50% pay cut, I'd prefer a layoff and severance, as I have a side project I'd like to pursue. Is this a reasonable position to take?
I really don’t understand the question.

You have decided that if asked to take a 25% pay cut you find that acceptable and would happily accept it.

You have also decided that if asked to take a 50% pay cut you want a layoff and severance.

So, it seems a better question to ask is “if I’m asked to take a 50% pay cut, what’s the best way to get a layoff and severance?”

Does that make sense?
It's basically how to ask tactfully for lower hours in exchange for moderate pay cut or severance in exchange for large pay cut.

anonsdca
Posts: 370
Joined: Mon Jun 01, 2015 11:47 pm

Re: Executive pay cut request: How to respond?

Post by anonsdca » Fri Apr 10, 2020 11:38 pm

I guess I don't understand this post. Someone said you are making a $1M salary? Not sure where that comes from, how do they know, but if so...

Isn't the question--do I have enough saved, invested, EF (inner & outer rings) to detach and purse this "side project"? I mean really, it would not take me many years of earning $1M, to be done with it all.

Of course, you would have needed to live well below your means to do that.

User avatar
Topic Author
market timer
Posts: 6299
Joined: Tue Aug 21, 2007 1:42 am

Re: Executive pay cut request: How to respond?

Post by market timer » Fri Apr 10, 2020 11:39 pm

Watty wrote:
Fri Apr 10, 2020 11:26 pm
It might vary by industry but I unless they were paid hourly few people I have known consistently worked just 40 hours a week.
I tend to organize my schedule so that I don't need to work many hours: clear goals for my teams, clear evaluation metrics, technical guidance, pushing back on management when busy work is assigned, no political jockeying, no gossip, and willingness to make hard decisions proactively. Usually I don't have to work more than 25 hours per week.

pennylane
Posts: 256
Joined: Thu Apr 12, 2018 10:22 am

Re: Executive pay cut request: How to respond?

Post by pennylane » Fri Apr 10, 2020 11:40 pm

If I was on the board with the company bleeding and my executive wasn’t happily willing to take a pay cut in the best interest of the organization that pays him a generous salary when the going is good I’d immediately know I hired the wrong guy. I’d launch you faster than you can blink. Good luck.

123
Posts: 5986
Joined: Fri Oct 12, 2012 3:55 pm

Re: Executive pay cut request: How to respond?

Post by 123 » Fri Apr 10, 2020 11:52 pm

I'd hold the company to the terms of what you and they have already agreed to, that's what contracts are for. They may find it cheaper to say goodbye and pay you off under whatever terms the contract provided. But you agreed to that so it's not a surprise.

If you allow and accept the company's ability to act outside the terms of the contract it could lead to a death by a thousand cuts as provision after provision is ignored to the point that you're simply let go without a leg to stand on since you acquiesced to everything they did.
The closest helping hand is at the end of your own arm.

fatFIRE
Posts: 346
Joined: Sat Feb 15, 2020 10:44 pm

Re: Executive pay cut request: How to respond?

Post by fatFIRE » Sat Apr 11, 2020 12:04 am

anonsdca wrote:
Fri Apr 10, 2020 11:38 pm
I guess I don't understand this post. Someone said you are making a $1M salary? Not sure where that comes from, how do they know, but if so...

Isn't the question--do I have enough saved, invested, EF (inner & outer rings) to detach and purse this "side project"? I mean really, it would not take me many years of earning $1M, to be done with it all.

Of course, you would have needed to live well below your means to do that.
Looks like OP earns $700k, so not quite $1M. I just assumed $1M, because OP is an executive, and that's like the min salary for executives at my megacorp.

But OP may be looking at a reduction from $700k to as much as $200k. I'll be upset in that situation. Part of my response will also be salary history. If this was my first year, yeah I would be upset and not take that pay cut. But if I've been paid $700k for the last 20 years... then my reply is take a severance and go for early retirement, and you get zero sympathies from me.

Third solution is why not just take the hit first, but negotiate for much less hours, and then go searching for a new job in the meantime? If you play your cards correctly, you'll end up with a new job, maybe even one with a higher compensation.

Skiandswim
Posts: 147
Joined: Tue Dec 21, 2010 3:24 pm

Re: Executive pay cut request: How to respond?

Post by Skiandswim » Sat Apr 11, 2020 1:20 am

My personal observations during the Financial Crisis, employment contract severance provisions were not necessarily followed. Firms invoked force majeure clauses, made broad interruptions, or just ignored provisions (better to face legal challenge later than pay cash now). Take care if you pursue that option.
If your firm has private or public equity, an option might be to discuss restricted stock units in exchange for pay cut (and fixed and variable). An equity position today could be very valuable in 1-2 years if you feel your firm will be in a healthy position post-COVID crisis.

bi0hazard
Posts: 101
Joined: Mon Mar 14, 2016 10:36 pm

Re: Executive pay cut request: How to respond?

Post by bi0hazard » Sat Apr 11, 2020 1:57 am

I’m not gonna sugar coat this. A LOT of folks are taking pay cuts at at this time... you’re not unique. If you don’t like it or can’t emotionally deal with it, then quit your job.

DonIce
Posts: 1117
Joined: Thu Feb 21, 2019 6:44 pm

Re: Executive pay cut request: How to respond?

Post by DonIce » Sat Apr 11, 2020 2:07 am

market timer wrote:
Fri Apr 10, 2020 10:28 pm
Many companies are asking executives to take pay cuts in this environment. It is likely I'll be asked to take one, so I would like to respond appropriately. My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school. If asked to take a 50% pay cut, I'd prefer a layoff and severance, as I have a side project I'd like to pursue. Is this a reasonable position to take?
It's your career. You can take whatever position you want. As an executive you don't get paid to go with the flow but to make decisions. Make a decision about your own career, and communicate it professionally to your organization.

ARoseByAnyOtherName
Posts: 1000
Joined: Wed Apr 26, 2017 12:03 am

Re: Executive pay cut request: How to respond?

Post by ARoseByAnyOtherName » Sat Apr 11, 2020 5:29 am

market timer wrote:
Fri Apr 10, 2020 11:33 pm
ARoseByAnyOtherName wrote:
Fri Apr 10, 2020 11:17 pm
market timer wrote:
Fri Apr 10, 2020 10:28 pm
Many companies are asking executives to take pay cuts in this environment. It is likely I'll be asked to take one, so I would like to respond appropriately. My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school. If asked to take a 50% pay cut, I'd prefer a layoff and severance, as I have a side project I'd like to pursue. Is this a reasonable position to take?
I really don’t understand the question.

You have decided that if asked to take a 25% pay cut you find that acceptable and would happily accept it.

You have also decided that if asked to take a 50% pay cut you want a layoff and severance.

So, it seems a better question to ask is “if I’m asked to take a 50% pay cut, what’s the best way to get a layoff and severance?”

Does that make sense?
It's basically how to ask tactfully for lower hours in exchange for moderate pay cut or severance in exchange for large pay cut.
I’ve heard good things about this, as a reference for your second question:
https://www.financialsamurai.com/how-to ... our-job-2/

WolfgangPauli
Posts: 357
Joined: Sun Aug 23, 2015 8:28 am

Re: Executive pay cut request: How to respond?

Post by WolfgangPauli » Sat Apr 11, 2020 6:42 am

Normchad wrote:
Fri Apr 10, 2020 10:33 pm
Something I've never understood is, why do companies ever give severance? As a steely eyed capitalist, when times are tough and people need to get laid off, where do the companies suddenly find the money to pay severances?
They pay severance to avoid being sued. If you get a severance you will be asked to sign a giant form which basically says you will never sue them for anything at anytime for any reason .. no age discrimination, other forms of discrimination. Some even say you will never publicly disparage the company (in the age of social media that is a big deal). In the states where it is allowed it is also a payoff to have you take a non-compete.

It is a "fee for services" nothing more. While some companies may be more altruistic then others, the vast majority are paying you to get you to do something - sign the form.
Twitter: @JAXbogleheads | EM: JAXbogleheads@gmail.com

jharkin
Posts: 2571
Joined: Mon Mar 28, 2016 7:14 am
Location: Boston suburbs

Re: Executive pay cut request: How to respond?

Post by jharkin » Sat Apr 11, 2020 6:47 am

market timer wrote:
Fri Apr 10, 2020 11:04 pm
fatFIRE wrote:
Fri Apr 10, 2020 10:53 pm
You're being paid >$1mil a year.
My target compensation is actually $700K, but it's mostly variable. I'm assuming pay will fall far short of target due to the economy. Could easily end up around $200K this year after pay cuts.
Your 25% of target pay cut would be more then we earn in a trpical year. It’s what many people on the front lines in this pandemic earn in a decade.

Or did, as 10s of millions are earning zero right now.

Food for thought....

jharkin
Posts: 2571
Joined: Mon Mar 28, 2016 7:14 am
Location: Boston suburbs

Re: Executive pay cut request: How to respond?

Post by jharkin » Sat Apr 11, 2020 6:54 am

WolfgangPauli wrote:
Sat Apr 11, 2020 6:42 am
Normchad wrote:
Fri Apr 10, 2020 10:33 pm
Something I've never understood is, why do companies ever give severance? As a steely eyed capitalist, when times are tough and people need to get laid off, where do the companies suddenly find the money to pay severances?
They pay severance to avoid being sued. If you get a severance you will be asked to sign a giant form which basically says you will never sue them for anything at anytime for any reason .. no age discrimination, other forms of discrimination. Some even say you will never publicly disparage the company (in the age of social media that is a big deal). In the states where it is allowed it is also a payoff to have you take a non-compete.

It is a "fee for services" nothing more. While some companies may be more altruistic then others, the vast majority are paying you to get you to do something - sign the form.
They also do it to at least pretend that they care about their employees. I’ve worked at firms that regularly used mass layoffs to juice the numbers. The knowledge that competitive severances where granted is the only thing that prevented a mass exodus of talent. If word got out they did layoffs with no severance they would never be able to recruit anyone worth hiring and the business would collapse.
Last edited by jharkin on Sat Apr 11, 2020 7:44 am, edited 2 times in total.

MikeG62
Posts: 2739
Joined: Tue Nov 15, 2016 3:20 pm
Location: New Jersey

Re: Executive pay cut request: How to respond?

Post by MikeG62 » Sat Apr 11, 2020 6:58 am

market timer wrote:
Fri Apr 10, 2020 11:39 pm
Watty wrote:
Fri Apr 10, 2020 11:26 pm
It might vary by industry but I unless they were paid hourly few people I have known consistently worked just 40 hours a week.
I tend to organize my schedule so that I don't need to work many hours: clear goals for my teams, clear evaluation metrics, technical guidance, pushing back on management when busy work is assigned, no political jockeying, no gossip, and willingness to make hard decisions proactively. Usually I don't have to work more than 25 hours per week.
Seems to me that your company has been very good to you. Now they are in a position where they need your help. If they are faced with the decision to temporarily reduce executive salaries or terminate employees (maybe people you know and care about, including people on your team), I’d be inclined to do whatever it took to keep the company solvent and in a position to bounce back once this crisis passes (and do my part to help keep these other lower paid employees in their jobs).

To me, being an executive means you are treated differently from rank and file employees. You get paid a lot more, but when the crap hits the fan you may need to make sacrifices others are not asked to make. That’s life. I was a C-suite level executive for roughly two decades, so been there and done that.

More specifically to your question, no I would absolutely not ask for reduced hours in exchange for the pay cut. I’d work as long and as hard as necessary to try and help the company and my peers get through this very difficult time and to save the jobs of my fellow employees. First, it’s the right thing to do. Second, I believe acts like this are paid back many times over.

I would, however, make sure that my severance, should this crisis extend such that it results in the loss of my job, be based upon my salary in effect immediately prior to this or any subsequent pay cut resulting from the Covid-19 crisis.
Real Knowledge Comes Only From Experience

runner540
Posts: 1230
Joined: Sun Feb 26, 2017 5:43 pm

Re: Executive pay cut request: How to respond?

Post by runner540 » Sat Apr 11, 2020 7:06 am

MikeG62 wrote:
Sat Apr 11, 2020 6:58 am
market timer wrote:
Fri Apr 10, 2020 11:39 pm
Watty wrote:
Fri Apr 10, 2020 11:26 pm
It might vary by industry but I unless they were paid hourly few people I have known consistently worked just 40 hours a week.
I tend to organize my schedule so that I don't need to work many hours: clear goals for my teams, clear evaluation metrics, technical guidance, pushing back on management when busy work is assigned, no political jockeying, no gossip, and willingness to make hard decisions proactively. Usually I don't have to work more than 25 hours per week.
Seems to me that your company has been very good to you. Now they are in a position where they need your help. If they are faced with the decision to temporarily reduce executive salaries or terminate employees (maybe people you know and care about, including people on your team), I’d be inclined to do whatever it took to keep the company solvent and in a position to bounce back once this crisis passes (and do my part to help keep these other lower paid employees in their jobs).

To me, being an executive means you are treated differently from rank and file employees. You get paid a lot more, but when the crap hits the fan you may need to make sacrifices others are not asked to make. That’s life. I was a C-suite level executive for roughly two decades, so been there and done that.

More specifically to your question, no I would absolutely not ask for reduced hours in exchange for the pay cut. I’d work as long and as hard as necessary to try and help the company and my peers get through this very difficult time and to save the jobs of my fellow employees. First, it’s the right thing to do. Second, I believe acts like this are paid back many times over.

I would, however, make sure that my severance, should this crisis extend such that it results in the loss of my job, be based upon my salary in effect immediately prior to this or any subsequent pay cut resulting from the Covid-19 crisis.
+1
I see a lot of companies across industries and sizes doing paycuts, concentrates among management and better paid employees. Be a team player and a leader. Refusing is going to be remembered and not in a good way.

Seasonal
Posts: 1659
Joined: Sun May 21, 2017 1:49 pm

Re: Executive pay cut request: How to respond?

Post by Seasonal » Sat Apr 11, 2020 7:15 am

market timer wrote:
Fri Apr 10, 2020 10:28 pm
Many companies are asking executives to take pay cuts in this environment. It is likely I'll be asked to take one, so I would like to respond appropriately. My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school. If asked to take a 50% pay cut, I'd prefer a layoff and severance, as I have a side project I'd like to pursue. Is this a reasonable position to take?
What are other executives in similar positions in your company doing?

Some companies are announcing executive pay cuts for symbolic and employee and public relations reasons. Are you the type of executive for whom these considerations apply?

How would your response be likely to affect your future with your company?

Executive pay is usually based on responsibilities rather than hours worked, so I find moving from a 40 to 30 hour work week a bit odd. It's not much of a sacrifice to take less pay for less work.

I agree with runner and MikeG, above.
Last edited by Seasonal on Sat Apr 11, 2020 7:18 am, edited 1 time in total.

User avatar
Watty
Posts: 19730
Joined: Wed Oct 10, 2007 3:55 pm

Re: Executive pay cut request: How to respond?

Post by Watty » Sat Apr 11, 2020 7:18 am

market timer wrote:
Fri Apr 10, 2020 11:39 pm
Watty wrote:
Fri Apr 10, 2020 11:26 pm
It might vary by industry but I unless they were paid hourly few people I have known consistently worked just 40 hours a week.
I tend to organize my schedule so that I don't need to work many hours: clear goals for my teams, clear evaluation metrics, technical guidance, pushing back on management when busy work is assigned, no political jockeying, no gossip, and willingness to make hard decisions proactively. Usually I don't have to work more than 25 hours per week.
I never worked at the executive level but over my career one thing I consistently saw was that when people did not have enough work to keep them busy if they were not given additional responsibilities then that was not a good sign for their future at that company.

Your comment about "pushing back on management" also seems odd and makes me wonder how high up your position is. If you are not dealing with the board of directors then your position may be more middle management than executive even if you have an impressive sounding job title and a lot of people that report to you.

Middle management can be a precarious position to be in when a company is struggling, especially if you don't have enough work to keep busy.

It would be good to check your contract to see what happens if it is not extended when it ends. It might be less expensive to just keep you around until the contract ends than to pay you severance.

If you can get the severance then it might be a good time to take it.

PS If you are only actually working 25 hours a week then why are you even talking about cutting your hours from 40 to 30?

User avatar
JoeRetire
Posts: 5269
Joined: Tue Jan 16, 2018 2:44 pm

Re: Executive pay cut request: How to respond?

Post by JoeRetire » Sat Apr 11, 2020 7:18 am

market timer wrote:
Fri Apr 10, 2020 10:28 pm
Many companies are asking executives to take pay cuts in this environment. It is likely I'll be asked to take one, so I would like to respond appropriately. My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school. If asked to take a 50% pay cut, I'd prefer a layoff and severance, as I have a side project I'd like to pursue. Is this a reasonable position to take?
You are an executive, and you want to propose that your hours be dropped to 30? That would seem completely out of place for all the executives I have worked with. Not something I have done or would do.

Your argument that you would be willing to accept a 25% cut "due to lower productivity when working from home" seems completely at odds with your reduction to 30 hours. If you are less productive by 25% when working 40 hours, it seems like you'll be even less productive when only working 30 hours.

Your position doesn't seem reasonable to me. But only you know how your company would respond to your proposal.
Last edited by JoeRetire on Sat Apr 11, 2020 7:20 am, edited 1 time in total.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.

mortfree
Posts: 2324
Joined: Mon Sep 12, 2016 7:06 pm

Re: Executive pay cut request: How to respond?

Post by mortfree » Sat Apr 11, 2020 7:18 am

market timer wrote:
Fri Apr 10, 2020 11:39 pm
Usually I don't have to work more than 25 hours per week.
This is my favorite part of the thread so far. For what should be obvious reasons.



Hope you get a fair deal

WolfgangPauli
Posts: 357
Joined: Sun Aug 23, 2015 8:28 am

Re: Executive pay cut request: How to respond?

Post by WolfgangPauli » Sat Apr 11, 2020 7:25 am

market timer wrote:
Fri Apr 10, 2020 10:28 pm
Many companies are asking executives to take pay cuts in this environment. It is likely I'll be asked to take one, so I would like to respond appropriately. My view is that a 25% pay cut is reasonable due to lower productivity when working from home. I'm happy to agree to that with the understanding that my work week will be 30 hours instead of 40 to account for increased child care with the kids out of school. If asked to take a 50% pay cut, I'd prefer a layoff and severance, as I have a side project I'd like to pursue. Is this a reasonable position to take?
Sounds like you may have an employment contract and you need to look at that contract (if you have one) to really answer this question. For example, most employment contracts I have signed, at the executive level, discuss cut in pay. They will say something like a cut in pay allows you to execute your ability to resign due to actions of the company and be able to get all benefits (severance etc.). The three big things which are usually in there giving you the ability to do that are: 1) Cut in pay 2) Move more than 50 miles or so 3) A substantial change in duties (For example if they took a major responsibility away from you). That covers the contract piece.

What you do is more what you want to do. If you believe in the company and you are dedicated to its success then take the haircut like everyone else and work to get it back on its feet. - that is what long term associates due who believe in a company and the slogan "Enterprise before self".

However, if you are not "married to the company" and see yourself somewhat as an independent person working for whomever is best then take the severance and move on - assuming you have a better option.

That does not answer the question but hopefully helps you think through how to answer it.
Twitter: @JAXbogleheads | EM: JAXbogleheads@gmail.com

Normchad
Posts: 647
Joined: Thu Mar 03, 2011 7:20 am

Re: Executive pay cut request: How to respond?

Post by Normchad » Sat Apr 11, 2020 7:42 am

Today I learned I want to become an executive! The pay and the hours look good, and it comes with guaranteed severance!

stoptothink
Posts: 7865
Joined: Fri Dec 31, 2010 9:53 am

Re: Executive pay cut request: How to respond?

Post by stoptothink » Sat Apr 11, 2020 8:05 am

Normchad wrote:
Sat Apr 11, 2020 7:42 am
Today I learned I want to become an executive! The pay and the hours look good, and it comes with guaranteed severance!
+1. That's not how it works at my employer. My boss (CMO) works easily 80hrs/week and travels 250+ days a year, and that is the norm with all the other execs. They are also among the ~20% of the staff that is at the office every day right now. Someone found an amazing gig.

New Providence
Posts: 262
Joined: Fri Mar 27, 2020 7:10 am

Re: Executive pay cut request: How to respond?

Post by New Providence » Sat Apr 11, 2020 8:08 am

Is this a fictitious post? A $1 million a year executive asking for advise on the internet?

If judgement and decision-making is not your strength, why are they paying you so much money? In megacorps that salary is approaching C-suite.

User avatar
Shackleton
Posts: 439
Joined: Mon Dec 29, 2014 6:20 pm

Re: Executive pay cut request: How to respond?

Post by Shackleton » Sat Apr 11, 2020 8:23 am

New Providence wrote:
Sat Apr 11, 2020 8:08 am
Is this a fictitious post? A $1 million a year executive asking for advise on the internet?

If judgement and decision-making is not your strength, why are they paying you so much money? In megacorps that salary is approaching C-suite.
This is almost exactly what I was going to say. It only is a highly paid exec asking for career advice on an Internet forum, but not even giving enough info for good advice to be given. I think something doesn’t add up here. If you are paid $700k per year, you should be able to figure out the various options or at least understand what info people need to advise you.
“Superhuman effort isn't worth a damn unless it achieves results.” ~Ernest Shackleton

Xrayman69
Posts: 475
Joined: Fri Jun 01, 2018 8:52 pm

Re: Executive pay cut request: How to respond?

Post by Xrayman69 » Sat Apr 11, 2020 8:35 am

From my experience executive contracts have salary and expectation of service , thus not hourly wage.

It is from the likely vague terms used in the expected services or activities related to the job that the corporation or board of directors have as a means to require fulfillment of the duties. Thus under times of crisis, such as the current COVID19 situation many executives are working longer hours (hopefully away from others) for the same compensation. On the other side, if less hours for extended duration of time than proportional would seem “reasonable”.

Again from my experience, executives are also more likely to receive incentive bonus’ high could be substantially greater than base compensation when the profit margins are high. In these circumstances when base salary is not the majority or typically representative of overall compensation then I consider the base compensation as the floor and guaranteed.

My team may also be crossing this bridge if the stay home and shelter necessity continues for greater than another 2 months and extends through the summer. I have always told our team that base salary was the floor and should be used in our calculations for personal financial decisions and that the bonus’ were based upon profit margins above and beyond required retained earnings.

Currently everyone in the executive team is having to work less aside from senior leadership. Bonuses are out of the question for the year. We may be needing to furlough 25-40% of staff near term. If this continues executive compensation will likely not get reduced but salary increases and bonuses for the post COVID19 1-2 years will likely be frozen so as to rebuild the “war chest”. I don’t expect to let go of any executives unless natural attrition and the ability to get a sense for matched culture for the individual and employer. Our culture is in the performance and service to customers as part of team. Shared profits and shared contribution. We don’t need mercenaries who just want the cash. We want builders and those willing to invest peronsal sweat equity into the business, but this also comes with shared risk for participation.

Perhaps the OP’s employer is getting a feel for what the business and team will look like on the other side of the COVID19 era. The OP doesNot sound to personally wedded to the position and thus it may be best long term for both to just cut bait.

User avatar
Watty
Posts: 19730
Joined: Wed Oct 10, 2007 3:55 pm

Re: Executive pay cut request: How to respond?

Post by Watty » Sat Apr 11, 2020 8:43 am

New Providence wrote:
Sat Apr 11, 2020 8:08 am
Is this a fictitious post? A $1 million a year executive asking for advise on the internet?

If judgement and decision-making is not your strength, why are they paying you so much money? In megacorps that salary is approaching C-suite.
The OP has been on Bogleheads since 2007 and has made over 6,000 posts which would make me think that it is credible.

If it was by someone that had recently registered and only made a few posts that would be different.

I did not look through their old post but I can picture some tech managers making that sort of salary at FAANG type companies.

Normchad
Posts: 647
Joined: Thu Mar 03, 2011 7:20 am

Re: Executive pay cut request: How to respond?

Post by Normchad » Sat Apr 11, 2020 8:55 am

The OP is absolutely credible. And is responsible for some of the best, most thought provoking, and enlightening posts that I have read.

These are weird times, and are impacting many people. Nobody is immune from the fallout.

I wish MarketTimer the best.

RiotAct
Posts: 26
Joined: Tue Mar 31, 2020 8:21 pm

Re: Executive pay cut request: How to respond?

Post by RiotAct » Sat Apr 11, 2020 9:09 am

Normchad wrote:
Sat Apr 11, 2020 7:42 am
Today I learned I want to become an executive! The pay and the hours look good, and it comes with guaranteed severance!
Nice work if you can get it :D

cableguy
Posts: 154
Joined: Thu May 09, 2019 3:34 pm

Re: Executive pay cut request: How to respond?

Post by cableguy » Sat Apr 11, 2020 9:20 am

If lower level employees are taking a pay cut senior management should as well. And senior management doesn’t work reduced hours...they pretty much are expected to be available 7 days a week. The rub.....if you take a pay cut and then they fire you in 3 months....your severance should be based on your higher salary and the reduced one. These are tough times.....many companies are doing this. You know whose not doing this? Civil servants. Teachers, government workers, etc.

User avatar
8foot7
Posts: 2101
Joined: Mon Jan 05, 2015 7:29 pm

Re: Executive pay cut request: How to respond?

Post by 8foot7 » Sat Apr 11, 2020 9:29 am

I think -- if you truly have a gig that in good times pays 700k+ and only requires 25-30 hours a week -- that I would absolutely agree to an up to 50% pay cut for up to six months, with the caveat that (a) it's in writing before it happens, (b) I am agreeing to this only for six months and on day 183 post-signature my salary returns to the contracted level, and (c) if I am terminated during the six month period that my severance is based on the previous salary and not the cut salary.

Nothing will prevent you after six months from continuing the cut but this makes you look like a team player.

My answer would be different if you're the 80 hour typical executive with a lowish (relative to total comp) base and a lot of variable incentive comp that's probably going to be toast this year. If your base is 500 and you typically receive 1-2 million in incentive that won't happen this year, and they want you to cut to 250, then I think I'd have a different conversation that's more along the lines of what you're saying regarding hours etc. The incentive pay should be your skin in the game. I'd start by saying, "I'm sorry, I can't take a cut that deep, but here is what I can do..."

One exec I know went from $750k to $100k and the org signed a note that half of the difference would accrue until the crisis had passed and would be paid out at the end of the quarter after rank and file cuts were ended. Org saved cash, got a talking point, exec took a haircut but didn't lose it all. Another group I am familiar with went mostly to $1/year (to preserve benefit eligibility) without a net, but the board granted them a special 'retention' bonus after the previous crisis had passed that basically made them whole again.

Most execs, when the going gets tough, are asked to take deeper and longer cuts than the general employee group. And word has a way of getting around who took those cuts and who refused. Not sure I'd want to be part of the last group.
Last edited by 8foot7 on Sat Apr 11, 2020 9:54 am, edited 1 time in total.

randomguy
Posts: 9035
Joined: Wed Sep 17, 2014 9:00 am

Re: Executive pay cut request: How to respond?

Post by randomguy » Sat Apr 11, 2020 9:40 am

Shackleton wrote:
Sat Apr 11, 2020 8:23 am
New Providence wrote:
Sat Apr 11, 2020 8:08 am
Is this a fictitious post? A $1 million a year executive asking for advise on the internet?

If judgement and decision-making is not your strength, why are they paying you so much money? In megacorps that salary is approaching C-suite.
This is almost exactly what I was going to say. It only is a highly paid exec asking for career advice on an Internet forum, but not even giving enough info for good advice to be given. I think something doesn’t add up here. If you are paid $700k per year, you should be able to figure out the various options or at least understand what info people need to advise you.
If someone posts they have a 2 million dollar portfolio and they are asking for advice, you don't say why are you asking for advice if you already have 2million. Successful people often try to learn from the experience and expertise of others rather than trying to get by on what they think is the right idea. They collect as much information as possible and then make a choice.

To me the real question is do you want this job. If so taking a 50% pay cut for 6 months is no big deal when you think about the next 5+ years of working at the company. If you want to go work on your side project, it is time to move on. And in my limited experience things like pay cuts should result in things like option or stock grants to make you whole if things work out.

togb
Posts: 225
Joined: Mon Oct 23, 2017 8:36 pm

Re: Executive pay cut request: How to respond?

Post by togb » Sat Apr 11, 2020 9:52 am

Lots of leaders/executives/salaried employees are taking pay cuts now. Hourly workers are laid off, furloughed or have reduced hours. In my company, all leaders took a 25% cut in pay. We are still responsible for getting our jobs done, which is always the case for salaried employees.
I'm not happy about a 25% pay cut, but I'm an adult with an EF and I understand this is an investment in the organizations survival and future.

None of my staff make as much as the OP. But if one of them making 70K instead of 700K said they expected to reduce their hours, I'd lose all respect for them. On the other hand, if they get their job done and can head to the grocery store during what is normally their work day, I'm fine with that.

We're having a pandemic and many businesses are struggling. I think we're all in this together.

User avatar
Kenkat
Posts: 6317
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Executive pay cut request: How to respond?

Post by Kenkat » Sat Apr 11, 2020 9:52 am

I would not ask for hours to be reduced. At your level, the expectation that I have always understood it to be is that you work what is needed to get the job done. It’s not a clock punching job; you are paid to get results.

I think a job that pays a target of $700k and where you average 25 hours a week is an extremely valuable job. I’d probably try to hold it at all costs myself.

In a crisis situation, my experience is the best response is “what do you need me to do”? If they ask you to take a 50% cut and you aren’t willing to do that, just say “I can’t do that”. Leave hours, etc. out of it. You want to avoid coming off as “what’s in this for me”. Now is not the time for that; that can come later after the crisis has passed.

KyleAAA
Posts: 8333
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: Executive pay cut request: How to respond?

Post by KyleAAA » Sat Apr 11, 2020 9:55 am

New Providence wrote:
Sat Apr 11, 2020 8:08 am
Is this a fictitious post? A $1 million a year executive asking for advise on the internet?

If judgement and decision-making is not your strength, why are they paying you so much money? In megacorps that salary is approaching C-suite.
I see this attitude a lot, and it makes no sense. As if highly paid individuals are magical beings who know everything. They're just people and often need guidance in the same way everyone else does. Why wouldn't they? I know a legitimate billionaire who spends half his time on Reddit. They are just people.

Post Reply