Invoice Bazaar Blog

Is it fair for an SME to cut salaries during downturns if it has not hiked them during economic booms?

By Invoice Bazaar | September 30, 2020

A large number of small businesses across the globe have been adversely affected by the economic downturn triggered by the Covid-19 pandemic. Because of this development, the majority of the SME employees fear they would have to accept a cut in their salaries very soon if it has not already happened by now. However, some analysts and compensation experts are of the view that if a business enterprise has not hiked the salary of its employees during boom times in the past, then it should not cut their salary during recessions or slowdowns because of the following reasons.

To keep staff morale high and to provide them with a sense of security during this depressing phase, the small business owner must display strong empathy by not resorting to salary cuts thereby safeguarding the interest of the entire workforce. The sympathy that the SME owner shows during the current slowdown will fetch rich dividends as the employees will try to reciprocate this goodwill gesture.

So, by not resorting to salary cuts, the SME owner can win the goodwill of her employees. It will positively impact the bottom-line of the organization as the employees will feel motivated to work more sincerely and put in their best efforts to ensure their organization performs better and posts good profits. As such, no entrepreneur should miss this unique opportunity to win over the goodwill of her staff, especially if she has not hiked their salaries during economic booms in the past.

However, if there has been a substantial decline in the production or turnover and the SME is set to register a significant loss in its operations, then the business owner can consider pay cuts. But it should be done only after taking all the employees into confidence by explaining to them why such a move was inevitable to avert layoffs or restructuring or bankruptcy or other extreme measures. Doing so will facilitate the building of a more emotionally mature workplace in future.