Pay cuts: How a CIO might break the news

Dear Bob …

I’m in a tough situation. My company has decided to take advantage of the bad economy and job market by cutting pay across the board. We’re talking about a 10 percent cut, and it will affect everyone except the CEO and his direct reports (which includes me).

[ Also on InfoWorld, Bob weighs in on the question: Do CEOs have to live by the rules they set? | Get sage advice on IT careers and management from Bob Lewis in InfoWorld’s Advice Line newsletter. ]

If we were bleeding red ink I wouldn’t have a problem. Since we managed to remain profitable through the worst of the downturn and have started to grow again, I have a hard time defending this decision. And yet it’s my job.

Any ideas how to go about it?

– Embarrassed

Dear Embarrassed …

First: From the perspective of a theory-of-compensation purist, this decision might be justified. To a purist, compensation levels should reflect supply and demand — what the market will bear. Following the downturn, the supply of available employees has greatly exceeded the demand. Yours isn’t the only company to cut compensation. The result is downward pressure on compensation in the labor marketplace.

This downward pressure isn’t necessarily uniform, so it very well might be the case that the company’s top executives are underpaid relative to the marketplace, even though most employees are overpaid, also compared to the marketplace — unlikely, but possible.

Except for one thing: If this were truly a response to conditions in the labor market, the pay cuts wouldn’t be across the board. They’d be the result of a compensation analysis that resulted in a “reset” for each job classification in the company. The cuts, that is, would be tailored, rather than being a uniform number.

So it’s hard to imagine that the decision to cut everyone’s pay except that of the top execs is anything other than miserable. Had the CEO decided to include himself and his direct reports in the reduction, it might be a different matter. Since that isn’t the case, it’s hard to find a decent rationale.

If your company is privately held this matters less, since executive compensation in privately held companies is private information. If the company is publicly held, on the other hand, employees will have an easy time figuring out what happened. The consequences are predictable: Plummeting morale, and the best employees leaving to work in organizations with better leadership.

So no, I can’t help you develop the right words to say, because I can’t come up with anything that would hold up to even a superficial analysis.

Fortunately, I don’t have to, and neither do you. What you do need to do is to highlight the need for a clear, unified plan to communicate what’s happening, developed at the highest level of the company and crafted to make sense to employees.

As with any tough business change, the formula for this sort of communication is problem/solution/plan. Sell the problem — the reason a change is necessary — then explain what the company decided to do about the problem and why. The plan comes last and describes how the company will implement the solution.

As part of bringing up the need to the CEO and your peers, suggest that everyone role-play skeptical line employees to do your best to punch holes in this communique.

Whatever else happens, you’ll be off the hook with respect to developing the message. You’ll still have to deliver it, of course.

Unless, that is, you get lucky, and the process of trying to develop a coherent explanation of why the cuts make sense convinces everyone they don’t make sense.

– Bob

This story, “Pay cuts: How a CIO might break the news,” was originally published at InfoWorld.com.