Salary Alternative to Layoffs in recession and Leadership Burden

The Upcoming Recession

With CoronoaVirus Pendamic, in 2020, the news of Layoffs and cost-cutting are happening again. For my generation this will be third such global recession ie 2000 DotCom bust, 2007-8 Global Finacial Crisis and Now CoronaVirus lockdown recession. In the times when the business stops, revenue dries are mass-scale layoffs the only option? This post argues that it is not and goes on to propose an alternative and new leadership paradigms to avert it in the future .

Current Salary and layoff Model

In my LinkedIn reply to Dan Price of Gravity Payments(2020), I suggested the concept of alternative recessionary salary ARS. If you see the current salary structure it has the basic/guaranteed part including the statutory/legal. Then there are commissions, bonuses, Stocks and some performance/result based salary. The later are the optimistic components based on growth. At times these growth components are applied to people who don’t really have any realistic control over growth. But as part of the norm it remains.In Indian IT setup, variable pay for even junior level is in practice and some CFOs even touted them as levers available for quarterly results!

Alternative Recessionary Salary ARS

The ARS that I suggest is an alternative salary structure offered to people in recession time. It has 3 components. One is the salary cut that everyone takes because the revenue is down, say 1/3 part. The second one is the mandatory pay that everyone gets say 1/3. The last one is the salary credit, say another 1/3. The salary credit is accumulated (accrued) in persons’ account for future payment . Say a year later or sometime in the future when a certain percentage of revenue is back one can vest it . But it is legal entitlement so long the business remains alive. Even better will be to allow employees to decide their percentage of cuts and credit as opposed to 1/3 I suggested above .

Now the boundaries. First, it should not be seen as a loyalty program. Many times loyalty programs allow the deadwood to stay in companies. It remains undetected as its such a non-CEO thing to talk about skill obsolescence and retain good PR on loyalty. The model above is then a sacrifice, an investment made by employees in the companies they wish to continue working for. The finance guys don’t like to accumulate future claims on their books. So this model can kick-in for a year only after which the layoff can happen. But the main question is what to do with these employees when the workload is less. The answer is, efficiency. At 1/3 pay, it is reasonable to put them to all the improvements and innovation tasks you always wanted. If you are an IT shop, putting them to work on open source will be a great investment. If nothing else works putting them to work on community/environmental issues is always possible. If this model becomes the norm some governments might include them into their tax incentive systems!

Threats of misuse of ARS

The threat that this ARS becomes the main salary structure and doesn’t remain an alternative is real. But your HR people have lots of wisdom to offer here :).Recessions don’t last, once it’s over and the ARS is used as exploitatory practice the talent will simply move on or change its productivity. There are even more possibilities in which the workforce will retaliate. The aspects of the social bargain are well known and it would be a detour for this post to repeat it.

Why doesn’t ARS happened

I can’t say for sure that ARS or like model hasn’t happened . But it’s not mainstream. (In an opinionated way, read the following).

Modern leadership is leading by finance! Quarterly results weight much more important than:social good, nurturing employee or even national priorities! Even terms like innovation are not valuable unless it results in profit or cost optimization[one example,In India FlipKart started using air-inflated bags for packaging as opposed to thermocol , huge innovation on the environmental front, will it count on wall street ?]. The current corona crisis is a test of the resilience of our social structures. This includes organizations too. Nations are made to think about the sufficiency and efficiency of their health system, aid programs. Some have even started to question their supply lines and independence in fundamental tech. Even the matter of trust and cooperation between larger structures such as the EU or G20 are happening. This will result in a sort of reboot and redesign at many levels of society and companies(which might make recovery very fast).

It is the test of structural resilience. But it is not as mainstream as the matter of solvency, optimization and profit are. In that effect, modern business leadership is dictated by personal ambition of bonus payout of some aggressive hedgefund guy than thinking about social structure. That has become such a norm that buck-backs during the recession are not even questioned by anyone.Whereas it’s the social structure, of diff kind, the supports/incentivizes/benefits/suffers the organization. This is the basis of capitalism which has given way to stockmarketilism . The invisible hand of capitalism is cuffed. High time the CEOs are freed from the burden of quarterly increases and newer metrics of growth-benefit- wisdom emerge. In today’s business landscape, where profit and personal ambition often take precedence over social structure, tools like an instant checkstub generator can provide a tangible solution.

Notes for further reading :

• Harari on the world after https://www.ft.com/content/19d90308-6858-11ea-a3c9-1fe6fedcca75
• Ben Thompson on Compaq moment: https://stratechery.com/2020/compaq-and-coronavirus/
• Adam Smits Invisible Hand: https://en.wikipedia.org/wiki/Invisible_hand
• HBR article on compensation alternative: https://hbr.org/2018/07/7-compensation-strategies-for-cash-strapped-startups
• Amar Bhide on capitalism mishaps :https://hbr.org/1994/11/efficient-markets-deficient-governance
• Tim Urban on why things are the way they are https://waitbutwhy.com/2019/12/political-disney-world.html
• World After ,Survey of experts https://foreignpolicy.com/2020/03/20/world-order-after-coroanvirus-pandemic/