A massive recession hits and the boss of a company – let’s say they make shoes – gathers her employees into the main headquarters for an all-hands meeting. Everyone is there, from the executive vice presidents to the guy who waters the plants.
And she says, “Here’s the deal, gang…sales are going to fall by 20% this year and we’ll have no profits. We also don’t know when the economy will get better. My inner circle is telling me to lay off 20% of you immediately to make it through this period. But instead, I’ve decided to keep everyone and, rather than lay 20% of you off, I’ll just cut everyone’s compensation by 20%. How does that sound?”
You never hear about companies doing this. And do you know why? Because, from a psychological standpoint, it would never work. People don’t care about their coworkers as much as they care about themselves. So seeing someone else’s job get saved while you’re stuck doing the same amount of work for a fifth lower compensation will not motivate you in any way or make you feel good about the company you work for. It will depress you, and then enrage you. Depression is just rage turned inward, I learned from re-watching the entire Sopranos this past spring on HBO Max.
So, believe it or not, you would rather see your coworkers fired than be forced to do the same job for less. You won’t admit it out loud. Or even to yourself, in your own head. But it’s true. And Corporate America knows this, which is why recessions lead to layoffs, not compensation cuts. Experienced hiring managers know this, which is why bonuses can be given in a bountiful environment easier than raises can. Because you cannot take back a raise. You can always add to someone’s comp, slowly, little by little, over time. You cannot take a penny of that back once someone’s gotten accustomed to it. I mean, you can take it back, but then you’ll have an employee who hates you, hates the company, hates the customers, and if you multiply that by five or ten affected workers, your business is in trouble.