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What things would you take into consideration, if you need to decide between having a pay cut across the board or laying off people. I came across this article which gives good explanation about both options and how his company was able to achieve its goals with pay cuts.
http://leaderchat.org/2009/01/30/layoffs-or-pay-cuts-how-would-you-decide/
In the above article, the author mentions that everyone took a pay cut except for people who made less than $50,000 and they were able to bounce back. But if you are asked to take a pay cut as an employee and if you have better paying jobs outside, are you going to take pay cut or move on. Whether you choose pay cuts or lay offs depend on how you are doing in the organization, suggests Manish Sabharwal,chairman of Bangalore-based staffing solutions firm TeamLease. If you are competent, you prefer lay offs, if you are not, you prefer pay cuts.He also cautions that it is dangerous to think that everyone thinks the same way.But, If this is true and the best decide to move on, its going to be a big loss to the organization.
You might argue that in this kind of economy, those better opportunities are not going to exist and pay cuts may be the way to go. But, what happens when the economy starts to bounce back, your best performers would the first ones to go.
Finally, I agree with the conclusion presented by the linked article above:
In the end it seems like the deciding factor may be the type of culture present in your organization. Some organizational cultures are more of the “we’re in this together” while others have developed more of a “Sorry, but business is business” type of attitude.
P.S: There is a poll in this blog about your preferences about layoffs or pay cuts. Do Vote.
