General Motors is temporarily trimming 69,000 workers’ salaries by 20% and plans to repay the money with interest by March 15 of next year.
Photo: rebecca cook/ReutersAs the coronavirus outbreak spreads, many workers’ paychecks are shrinking.
A growing number of companies are trying to spread the financial pain as they contend with government-ordered lockdowns, dwindling production orders and closed stores, restaurants and plants. They reason that keeping on some workers at reduced pay can ease fixed costs and stave off greater job losses—while keeping talent at the ready if the economy and hiring market recover sooner than later. For some, it is a last resort to keep a skeleton crew employed while others are furloughed or laid off.
Occidental Petroleum Corp. said last week it would temporarily cut the salaries of its U.S. employees by up to 30%, while Cheesecake Factory Inc. reduced pay for corporate and bakery workers by up to 20%. Office furniture maker Steelcase Inc. said some U.S. salaried workers’ base pay and hours would temporarily be halved, with higher-paid workers shouldering bigger paycheck cuts.
“Our response to this is to try to keep every single person on our payroll and not do terminations and instead think through a way we can share the burden across everyone,” Jim Keane, CEO of Steelcase, said.
The $2 trillion federal stimulus package approved since Steelcase’s decision is resulting in fewer lower-paid employees having their salaries cut, Mr. Keane said. Under the law, unemployment payouts nationwide have been increased for four months. Mr. Keane said Steelcase anticipates some people will volunteer to be laid off and is using the expected savings to curb pay reductions.
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The number of people out of work has soared as the pandemic keeps major parts of the economy shut down. A record 6.6 million people sought unemployment benefits last week, double the figure from the week before, and economists say that number will continue to climb.
Some companies have specified they would pay workers back for the lost pay: General Motors Co. said it would temporarily trim 69,000 workers’ salaries by 20%, then repay the money with interest by March 15, 2021. A GM spokesman said the pay cuts for salaried workers, as opposed to layoffs, “will ensure that we can regain our momentum as quickly as possible after this crisis is over.”
Like many companies cutting workers’ pay, GM, Occidental, Cheesecake Factory and Steelcase are all cutting top executives’ compensation as well. So have many major airlines and hotel chains and retailers such as Macy’s.
Cheesecake Factory has cut pay for corporate and bakery workers by up to 20% and is cutting top executives’ compensation as well.
Photo: Patrick T. Fallon/Bloomberg News“I think right now everyone is saying, how do we deal with this situation that may not last?” said Linda Barrington, the executive director of Cornell University’s Institute for Compensation Studies. “We went into this with historically low unemployment and employers desperate for talent.”
Rules around government aid might also be incentivizing some companies to find a way to keep as many workers employed as possible, but stipulations also restrict companies from slashing pay deeply. For small businesses that retain workers, some federal loans in the new economic stimulus package can be forgiven, but companies can’t cut more than 25% of their total salary or wages for workers, said Zach Moller, deputy director of the economic program at Third Way, a centrist Democratic think tank in Washington.
Randy DeWitt, the CEO of Dallas-based Front Burner Restaurants LP, said dwindling cash prompted him to cut pay for about 250 employees still working at the company’s restaurants and in corporate roles. Front Burner—which has more than 30 eateries in Texas, Florida and Oklahoma, serving up everything from tacos to whiskey cake—has struggled with the transition to curbside pickup after shuttering its dining rooms. Revenue is down about 80%.
“It was just simply a math exercise,” he said of the decision to cut remaining workers’ salaries. The company has furloughed 2,576 other workers, continuing to pay their medical benefits and offering them a meal a day. Its top executives are working for no pay.
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Christine Agee, general manager at The Ranch at Las Colinas, a Front Burner restaurant in Irving, Texas, said she feels grateful just to have a job. She is working about 65 hours a week—up from 50 before the outbreak—for 60% of her previous six-figure pay. A typical night used to involve walking around and chatting with guests, the 32-year-old said. Now she is cooking, washing dishes and running out to the parking lot to deliver orders.
“We had no problem with it,” she said of her restaurant colleagues and the pay cut. “Whatever we can do to help make us go forward longer is what we’re willing to do.”
She said she has cut some nonessential expenses, like two makeup-box subscriptions, from her personal budget, but is still able to make her rent payments.
Other employees elsewhere aren’t faring as well. Maria Clymer, the director of sales at a franchised Hilton Worldwide Holdings Inc. hotel in Bedford, Texas, last week took a 70% cut to her salary. Most of the hotel’s business has evaporated, she said, and the 28-year-old has had to lay off staff and slash others’ hours.
“I’m healthy and alive, but I don’t have food to put on the table. We are just living day by day,” she said.
Base pay used to be sacrosanct, with companies rarely slashing it even in bad times, said Kenan Abosch, a partner in Aon PLC’s compensation practice. That changed in the wake of the 2008 financial crisis, when half of the 1,156 U.S. employers polled in the benefits and risk-consulting firm’s 2009 annual salary survey cut pay, he said. Only half of companies that went that route eventually boosted salaries again or repaid the losses, according to a subsequent survey later that year.
“It’s created some scars,” Mr. Abosch said, damaging employees’ trust and loyalty to their employers in the aftermath.
Some business owners said cutting salaries can be a matter of survival. Meg Keene, the founder and editor in chief of wedding website A Practical Wedding, said revenue streams such as vendor advertising have slowed to a trickle as social distancing has led to the postponement of many celebrations.
“It felt like standing on the edge of the cliff while it’s crumbling underneath you,” she said of challenges to her business in recent weeks.
She took her own salary to zero and considered laying off a sales employee. Instead, she asked two other workers if she could roll back the 15% raises they received in January. They said yes. The sales employee stayed on with a 40% pay cut.
She hopes tapping small-business relief provided for in the new federal stimulus package will enable her to restore workers’ salaries in the weeks to come, at least for a stretch.
“If I lay off my team, that’s damage I can’t undo,” Ms. Keene said. “The rest of it is damage I can walk back.”
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Write to Rachel Feintzeig at rachel.feintzeig@wsj.com and Patrick Thomas at Patrick.Thomas@wsj.com
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