In a “nasty evil” capitalist corporate environment, if a company’s financials are tanking, the first people who take a pay cut are the Board, or at least that’s been my experience as CFO and COO. One valid perspective is that you were the daft idiots driving the bus when it fell off the bridge into the river, so you should be the first to taste the ice-cold water.
There is also an emotional logic – if you own shares, you are going to participate in an exclusive tasty upside, so therefore when times are tough, you squeeze your own belt before you do so to others, or at least at the same time.
And then there is a third view through a company lens – you want to keep your teams, your people, motivated as much as you can for as long as you can, and that’s nigh on impossible in the midst of redundancies. Every tiny shagging thing helps. This may not be the same in other countries, but that’s the way it appears to be in London. I remember one MD in the wake of the 2007 crash. One of the first expense lines he reduced was the one in which his own salary sat.
So how come the Irish government has just approved a €16,000 increase to junior ministers’ salaries? How come we don’t hear of Johnson’s team in the UK sacrificing any salary? Or of US Senators – Republican or Democrat – calling for some unity and bonding with the voting man and woman? I’m not suggesting they furrow down their salaries to the point where they can’t make ends meet, but you can behave like the rest of us – ditch the champagne for a while and revel in some dynamite home brew, replace the foie gras with some jam and just wear what you wore last year, no one will notice. During the last financial crisis, I know some friends of mine, business owners who took a 60% pay cut – anything to keep the business going, to survive. In those stark terms, 10% isn’t that big a deal.
The impact of an act like this is financial and psychological. Let’s chuck the UK government into the hot seat. It could be thought that a slight reduction, say 10%, of MPs’ salaries, wouldn’t create enough fat to line a baking tray, or to make a large impact on a national scale financially – it’s not going to fund a wage increase for everyone in the NHS. But let’s think about it. An MP earns on average around £80k annually. There are around 650 constituencies, so that means they could save over £500k if everyone took a 10% reduction. I’ll just spell that out so you know it’s not a typo – half a million quid. A 10% paycut to US senators would free up almost $2 million. Even half that amount – a six month cut – could still do a lot. It could enable the government, I dunno, to avoid a few redundancies, to implement a system which would reduce stress on people, or to hire extra people into teams which are already vastly overloaded and under-resourced (heath care workers, health care workers, health care workers). It’s not a massive amount comparative to the national GDP, but if you put it in terms of people’s livelihoods, it starts to resonate. That’s the first argument.
The second is the symbolism of the act. It’s a feeling that we’re all in this awful crisis together. Everyone is great at reaming off the unemployment stats but an act like this puts their money where their mouths are – literally. So many of these dudes rose to power promising that they understood the working man/woman, that they would stand by us, that they wanted to help. Doing something like this shows that the elite aren’t creating an invisible forcefield around themselves through which the impending recession will not slice. It says, “I understand what you’re going through and I am acting. I am doing something. I’m trying to help you”.
As well as creating a feeling of togetherness, a salary cut also says ‘hey, we were the lads at the helm of this super-tanker when the crisis hit, and therefore it’s partially our fault so why should you, innocent healthcare worker or working person, why should you shoulder all the blame? We’ll portion a dose of it ourselves and that will spread it around more fairly.”
Jacinda Ardern and her New Zealand team took a six month 20% pay cut at the start of the covid-19 crisis, in solidarity with those whose employment was affected by covid 19. Hilariously, in Ireland, in response to the uproar created after the publication of the Irish junior ministers’ pay rise (as above), there was a fascinating turnabout and a 10% reduction announced to Government salaries – within days. Hey, at least they got the message and I’m happy about that. Although there is an argument that says they could push a bit further.
Now, wouldn’t it be great if other countries did the same, particularly those worst hit by the pandemic? Maybe some governments are waiting until the recession deepens. Maybe they don’t get it that, when it comes to the stuff that really matters – our livelihoods, our health and our families – proactive moves are much more powerful than reactive ones.