Salary Reduction or Job Reduction?

Which one would you choose - a reduction of your overall salary or being laid off? In my opinion, the answer seems simple - take the pay cut to save jobs on the whole and help to reduce our increasing unemployment rate. But surprisingly, many would disagree.

There are employees that believe that they are carrying their weight better than their neighbor, or that they are more qualified and more indispensable. This, as I have seen first hand through my own lay off in December, is a misconception. The lines for reduction in work force are not that clearly drawn. While there are under-performing employees that are let go, some good performers go with them as well. This can be due to several reasons: overall compensation, reorganization of the team, team considered an "overhead", length of employment, low level of billability (not necessarily controlled by the employee himself), etc. Additionally, many good performers, even if they haven't been laid off, will jump ship to avoid hostile work environments or the fear of more upcoming lay offs.

I've also been trying to understand the pros and cons from a corporate perspective. Why not give people a pay cut instead of letting them go completely?

I've heard that one of the cons of cutting pay is the fear of reduced morale. To that I say, have you noticed the lack of morale in the country in the past year!? I would think a cut in work force would cause a greater morale reduction. Luckily, I've been back at work (at the same company)for the past 2 months. What I've noticed though is that the morale due to the cuts has people depressed, unconvinced their work is being appreciated, and worried of unknown upcoming events. My employer became one of the 66% predicted to announce salary reductions from the top level down recently. While people weren't thrilled to see their pay checks diminished, their reactions were better than when the lay offs were announced. Most people went home relieved that they had a job in these turbulent times, even if it meant less take-home pay.

Cutting workforce sends a stronger negative message to investors and shareholders, than does cutting salaries. This can be detrimental to the health of many smaller companies that do not have the capital backing to support their institution besides with the help of their investors.

Additionally, and as mentioned before, a believed benefit to cutting workforce is trimming fat. This, however, is not always the case since many times valuable workers also get reduced for other reasons. Further, the employees who have not been cut are forced to take on additional work to compensate for those that have been laid off.

From a corporate standpoint, cutting pay may also help to equalize salaries that may have been to high due to the past economic boom.

While there are obvious financial benefits to reducing workforce, this shouldn't be an option considered by employers until all others have been tested such as, hiring freezes, travel reductions, cuts in charity events and advertising, tools consolidations to avoid unnecessary redundancies, and of course salary cuts.