Pay Reduction - What Happens if Layoff Occurs Afterwards?

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Stinger72
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Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by Stinger72 »

The mega company that I work for is laying off people and reducing the pay of others. I'm likely going to be impacted by a reduction in pay (~40%), which certainly is better than the alternative for me in this economy and my area.

While I know this is probably a question for HR if my number comes up, lets say I am impacted by a reduction of pay and hours (I'm salaried, but they've justified the reduction with granting reduced hours) - I accept the agreement, since other options are not on the table, and then a month from now they decide to do layoffs. Under the current employment, I would get a week for each year that I've been with the company, which works out to be 25 weeks. If they first cut my pay, and then do the layoffs, I would imagine that any severance they offer would be at the new reduced salary. This appears to be a good way around paying the severance at the full salary for 6 months or so.

Would they have any liability at all by doing the pay cut and then laying me off within the next 6 months? I am not coming from a place in which I believe the company owes me anything, but more so of a place of trying to plan for what is to come. Severance is certainly a perk, not a right, but we've been factoring it in based on the company policy, and this is something we didn't consider in all of our contingency planning, so trying to gather all the possibilities for better planning.

Thanks in advance!
BV3273
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Re: Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by BV3273 »

Plan for the worst and hope for the best. I wish I had a better answer but I don’t. Mega corps do as they please, but I’m sure you already know that.
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Makaveli
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Re: Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by Makaveli »

BV3273 wrote: Fri Oct 02, 2020 5:08 am Plan for the worst and hope for the best. I wish I had a better answer but I don’t. Mega corps do as they please, but I’m sure you already know that.
+1

This is happening at many shops right now. Do you have any contacts to see what precedent has been set? It won't necessarily be the same outcome for you but knowing more always helped settle my nerves when I'm in unknown waters.
DoubleComma
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Re: Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by DoubleComma »

What if you don’t accept a 40% Comp reduction?

In my Mega Corp this is all clearly defined in the HR policies published on our HR portal. If they make a substantial change to your role, including re-grading the Comp, you can decline and accept the published severance package. That would be 2 weeks per year, minimum 4 weeks and maximum 26 weeks, all paid in full on you last pay period.

As for severance Comp, it’s a 12 month average Comp ending on the last Aug. So if your are impacted in Sept 20, your average is Aug 2019-2020. If you are impacted July 20, your average is Aug 2018-2019. This mitigates what your describing or the opposite that you get a promotion and then impacted the next week.

Again, in my company, the gamble would be if they let you go unexpectedly they offer more than the minimum published policy. In practice this has been adding several months of health insurance, maybe offer a bonus to commuting to stay for X weeks/months to facilitate transitioning or for Sr mangers accelerating RSU vesting.

So in reality, nobody can answer your question without having some inside knowledge of your employer and policies.
mega317
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Re: Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by mega317 »

DoubleComma wrote: Fri Oct 02, 2020 10:04 am What if you don’t accept a 40% Comp reduction?
I'd like to know this too. If you have an option to take a severance now, vs. take the pay cut and hope for the best, you in a way working for free as they could fire you any time at lower or no severance.
https://www.bogleheads.org/forum/viewtopic.php?t=6212
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gr7070
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Re: Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by gr7070 »

Unless you have a written contract or laws that specifically apply nothing is guaranteed, and even then guarantee may be a little strong of a word.

Even their written corporate documents or longstanding policies/actions don't matter. All these can be changed at their discretion if not mandated by contract/law.

Tough situation; good luck to you.
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Stinger72
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Re: Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by Stinger72 »

I apologize for the lapse in responding, but I greatly appreciate everyone's input. It's exactly as I figured based on many of the responses, that there is no cut and dry answer and essentially at the mercy of the employer.

Probably would be smarter to take a reduction, get serious about finding another job, and see where things take me. Considering where many are at this time, I am very lucky to still have a paycheck coming in. Not ideal to start over in my late 40s, but we've been extremely blessed in life to this point, so I figured we'd hit more speed bumps at some point. Thank you all again for the responses!
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Watty
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Re: Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by Watty »

Most likely they can and will change the severance policy whenever they want unless you are an executive or are in a union and you have a contract.

Several times I have seen it go something like this;

1) First round of layoffs, good severance that most people would be glad to take.
2) Next round, very mediocre severance
3) Next round, two week pay in lieu of notice and you are walked out the door.

That is not an exaggeration.

Don't be surprised if your benefits are cut when they have the healthcare open enrolment period in November.

The writing is on the wall.

It would be good to put your job search into high gear.
stimulacra
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Re: Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by stimulacra »

I took a reduction in pay (10 weeks, voluntary) and during that period, others who also participated were let go or accepted an early retirement package and others who did not volunteer for the pay reduction are still with the organization.

I have no idea if volunteering for a reduction in pay (or not) factors in at all in subsequent decisions regarding reductions in workforce. My guess is no or that it's not a decisive tie-breaker.

At the end of the day I'm fine with the decision. It's all very personal and I discussed it with friends and family and felt like I got good counsel.
MikeG62
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Re: Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by MikeG62 »

Stinger72 wrote: Fri Oct 09, 2020 10:01 pm I apologize for the lapse in responding, but I greatly appreciate everyone's input. It's exactly as I figured based on many of the responses, that there is no cut and dry answer and essentially at the mercy of the employer.

Probably would be smarter to take a reduction, get serious about finding another job, and see where things take me. Considering where many are at this time, I am very lucky to still have a paycheck coming in. Not ideal to start over in my late 40s, but we've been extremely blessed in life to this point, so I figured we'd hit more speed bumps at some point. Thank you all again for the responses!
Why not ask the company what the policy would be in this case?

I would suspect that any pay reduction of the size you are referring to would be accompanied by a letter detailing the terms of the offer. My guess (and it's only a guess) is the wording would indicate that a cut of 40% is temporary with an anticipated stated term (duration). And by being temporary it would seem unlikely that the company, if they decided to terminate you due to a reduction in force during the time you were on this temporary pay reduction, would intend to pay out your severance at the new lower temporary rate (I would think they would open themselves up to litigation - note that IANAL, but I was a C-Suite officer for many years). Ask that your employment letter covering this temporary reduction in pay specify that if you are terminated due to a reduction in force while your pay is being temporarily reduced that severance would be paid at your full (former) pay rate. I don't think this would be an unreasonable ask.
Real Knowledge Comes Only From Experience
downshiftme
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Re: Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by downshiftme »

My guess (and it's only a guess) is the wording would indicate that a cut of 40% is temporary with an anticipated stated term (duration). And by being temporary it would seem unlikely that the company, if they decided to terminate you due to a reduction in force during the time you were on this temporary pay reduction, would intend to pay out your severance at the new lower temporary rate
This is such an optimistic outlook, but not at all realistic when dealing with real companies in the real world. Having lived through a very similar situation where the temporary reduction was at company request, they took advantage of the opportunity to recalculate numerous company perks, using the temporarily lower salary numbers. Converted from a pension to a cash value account, using very skewed calculations, but the temporary salary reductions figured prominently and employee accounts were much smaller than they would have been because they were based on salary. Some employees were laid off, but only AFTER the salary reductions took effect, so severance was based on the lower salary, even though it was only in effect for a month.

I would imagine that any severance they offer would be at the new reduced salary.
This has matched my experience.
MikeG62
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Re: Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by MikeG62 »

downshiftme wrote: Sat Oct 10, 2020 12:02 pm
My guess (and it's only a guess) is the wording would indicate that a cut of 40% is temporary with an anticipated stated term (duration). And by being temporary it would seem unlikely that the company, if they decided to terminate you due to a reduction in force during the time you were on this temporary pay reduction, would intend to pay out your severance at the new lower temporary rate
This is such an optimistic outlook, but not at all realistic when dealing with real companies in the real world. Having lived through a very similar situation where the temporary reduction was at company request, they took advantage of the opportunity to recalculate numerous company perks, using the temporarily lower salary numbers. Converted from a pension to a cash value account, using very skewed calculations, but the temporary salary reductions figured prominently and employee accounts were much smaller than they would have been because they were based on salary. Some employees were laid off, but only AFTER the salary reductions took effect, so severance was based on the lower salary, even though it was only in effect for a month.
Real world, real companies, I don’t know, I only spent the better part of two decades in the C-Suite of a NYSE listed public company with over 10k employees. I can tell you it would be highly unlikely we would have done to our employees what your company did to you.
Real Knowledge Comes Only From Experience
quantAndHold
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Re: Pay Reduction - What Happens if Layoff Occurs Afterwards?

Post by quantAndHold »

Watty wrote: Fri Oct 09, 2020 11:20 pm Most likely they can and will change the severance policy whenever they want unless you are an executive or are in a union and you have a contract.

Several times I have seen it go something like this;

1) First round of layoffs, good severance that most people would be glad to take.
2) Next round, very mediocre severance
3) Next round, two week pay in lieu of notice and you are walked out the door.
This is really, really common. If you’re taking a 40% pay cut, I wouldn’t expect that when you actually get laid off, you’d get anything close to 25 weeks of severance, at any salary level. People in later layoff rounds don’t get the goodies that people in earlier rounds get.

I’ve also seen:

4) Final round, the door is chained shut when everyone arrives Monday morning, and employees have to petition the bankruptcy court to get the personal items off their desks.
Yes, I’m really that pedantic.
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