Less for you, but more for everyone (Photo: Getty Images)

The psychology of why we accept pay cuts

With many workers being asked to take voluntary pay cuts to help struggling businesses stay afloat during the Covid-19 crisis, it begs the question: why are so many of us compelled to accept?

Towards the end of March, Ben* was asked by his employer of almost 20 years to take a 15% pay cut. Working as a video editor at one of the country’s largest media companies, Ben says he was given just a few days notice to either accept or decline the offer – not enough time to consult a financial adviser. But when the time came to make a decision, Ben agreed to take the pay cut, alongside hundreds of others company-wide. 

“We’ve been told it’s temporary, for six months, and the fact they attempted to scale the cuts [from executive and board members down] helped,” Ben says regarding his decision. “Besides, what’s best? A job and a temporary pay cut, or no job at all? That was the choice I had and I’m really, really grateful to still be able to work.”

Ben’s not the only one to find himself in this type of situation. In recent weeks, thousands of workers across New Zealand have received similar requests from their employers in an effort to manage the financial fallout of Covid-19. Lincoln University asked its staff to take a voluntary 5% pay cut for six months due to a decline in international student numbers, while falling ad revenue saw both NZME and Stuff call on their workers to accept a 15% reduction for the next 12 weeks. The Warehouse, which was restricted from trading under alert level four, asked those earning at least $60,000 to accept a 10-20% pay cut or face “other options including potential redundancy“.

At the time, The Warehouse said 88% of its staff had already agreed to the reduction, while Ben says out of the thousand or so employees asked to accept a pay reduction at his workplace, more than 85% had reportedly said yes. Auckland Transport, which asked some workers to volunteer for a 5-10% reduction in pay, said “an overwhelming majority” had chosen to opt in to their offer, which begs the question: why are so many of us compelled to accept?

Dr Joana Kuntz, an associate professor of psychology at the University of Canterbury, says she’s not surprised to see such high acceptance rates, citing the equity theory as an example as to why.

“The same way we’re inclined to redress the ceiling of inequity when we think we’ve been shortchanged in relation to others at work, we kind of do the same thing when we feel like we’re getting more than we deserve or if we see that others are somehow put in a place of disadvantage,” she says. “What we’re trying to do [by accepting the pay cut] is redress that inequity and restore a sense of balance. It’s natural that if we’re in a position to take the pay cut, [it means] others can maintain employment.”

“But also from our own standpoint, in the long run, it means companies can stay financially afloat so we see that also as a strategic move. You think, ‘I’ll take a pay cut now so the company doesn’t sink in the next few months and I can keep my job for longer’.”

Survivor syndrome and feelings of guilt also play a part for many workers, particularly those who stay after major layoffs at an organisation. “They wonder, ‘Why wasn’t I fired from work? Why do I get to stay?’ So there are a lot of negative feelings that accompany viewing others in a position of less privilege,” says Kuntz.

“You can also throw a bit of national culture in the mix. In the context of New Zealand, we have a lot of space to go outside and, compared to others, we’re not short of resources. The fact that we’re not constantly competing for food or a roof over our head puts most of us in a position where we’re not struggling. Therefore, we can give more to others.”

“Individualistic society becomes quite collectivist in times of change or challenge. These messages of ‘be kind’, ‘be giving’, and ‘there’s plenty for everyone’ actually resonate with people.”

Photo: Getty Images

Ben certainly echoes many of these theories. He’s empathetic for some of his hardest-hit colleagues, noting that his team’s least-paid team members were now on or very close to minimum wage, which is “particularly upsetting for a specialist role requiring months of training on equipment and practices”. He says he also feels there was a collective need to accept for the sake of the company’s existence, particularly as it was already fighting to survive prior to Covid-19.

“We all were hurting and [it felt like] we had to band together for the survival of our company,” he says. “It’s caused a lot of anxiety, and there’s been a feeling of having to take one for the team or feeling grateful to be able to accept to help those who simply couldn’t… There was a lot of pressure from every angle [to accept]. I imagine some who had to decline would’ve felt the pressure immensely.”

Kuntz says she’s also seen these psychological responses play out first hand, noting that senior management at the University of Canterbury had taken a 20% pay cut for the upcoming month and put that money towards a fund for students experiencing financial hardship instead. She says the call has also been made to academic staff such as herself to help out and that “a lot of people think that makes sense”.

“They want to help students experiencing hardship, promote student wellbeing, and retain students, which is also a strategic reason. So it’s kind of a no brainer. If we’re in an OK financial situation, there’s no reason not to pitch in and help out.

“Through informal conversations with my colleagues over the past few weeks, we’re all half expecting that if student numbers go down – especially international students – we might have to take a pay cut to ensure the sustainability of the university and we’re OK with that. We understand the business decision and we understand the sacrifice.”

In many ways, the overwhelming number of people willing to be paid less is a testament to exactly what our leaders have been calling for. Selfless behaviour for the sake of the collective good has been urged over all else to stop a highly contagious virus in its tracks – a sentiment that’s crossed over from the realm of public health to how we approach our economy, our businesses and our livelihoods. 

Jacinda Ardern, in her speech announcing the national lockdown, said, “I’m in no doubt that the measures I have announced will cause unprecedented economic and social disruption. But they are necessary.” No doubt many employers would’ve thought and said the same. 

Asked to take a pay cut? Know your rights

Obviously, having a job that pays less is preferable to having no job at all, but that doesn’t mean you have to just go along with whatever your employer tells you to do. Like a lot of things in life, your employer must have your consent in order to be allowed to change your pay. This means it’s a negotiation and the employer must bargain fairly. 

“The employer must give the employee a copy of the proposed changes, advise the employee they’re entitled to seek independent advice, give them a reasonable opportunity to seek that advice and then consider any feedback from the employee,” says Chris Scarott from employment law firm Cullen. “What is a ‘reasonable opportunity’ to seek advice will vary depending on the circumstances, but will usually be at least a few working days.”

Both you and your employer have an obligation of good faith that means you have to be communicative with each other. “An employer shouldn’t be telling the employee they’ll be made redundant if they don’t agree (especially because that would predetermine any restructuring process),” he says. “They can, however, tell them that they’ll need to consider options such as a restructuring if they aren’t able to reduce costs and that a restructure could lead to redundancies.”

And what if you’re not asked to take a voluntary pay cut, but instead you’re being paid less than your usual amount under the wage subsidy scheme? Do the same rules apply? 

“In both cases the employer needs the employee’s agreement to reduce their pay,” says Scarott. “The current version of the wage subsidy declaration makes clear that any change to terms of employment must be made by agreement.” So there you go. 

* Names have been changed



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