Abstract
Two options are discussed in the paper in relation to mitigation strategy of economic downturn. One strategy was the cutting of jobs i.e. mass layoffs and other option was to cut salaries. It is observed that in the U.S. (individualist culture), the norm is to adopt mass layoffs strategy and in Japan the strategy of pay cuts is used. However, in the U.S. some big companies used the strategy of pay cuts. Mass layoffs help the companies to increase productivity and morale with high profits by not cutting the salaries and terminating the employees. On the other hand, pays cuts help to retain skilled employees and preserve jobs. On the basis of the discussion, Japanese expatriate is advised to move to pay cuts instead of mass layoff. It will help the company to keep skilled employees and preserve the jobs instead of losing them.
Across-the-board Pay Cuts
Across-the-board pay cuts is the measure that the companies take in case of economic downturn (Peng, 2016). In addition, the companies to manage the budget crisis use the approach of across-the-board pay cuts to not hamper the mission (Olson, 2013). It is observed by the Peng (2016) that Japanese companies when face economic downturn, they move to across-the-board pay cuts as part of their norms.
Benefits of Across-the-Board Pay Cuts
Various companies use across-the-board pay cuts than mass layoffs as a strategy against economic downturn. There are various benefits due to which the companies use across-the-board pay cuts. One of the benefits of this strategy is that it helps to retain qualified employees. The managers to retain qualified employees either decrease the working hours on temporarily basis or reduce the compensation. Upon improvement of economy, the skilled workers get higher compensation. In addition, across-the-board pay cuts decrease the labor costs. However, it is important for the companies to initiate the pay cuts from top management to avoid the employees’ hardships. It is due to the fact that uniform pay cuts is considered a shared detriment for the company’s survival (Woodard, 2003).
One of the examples of the across-the-board pay cuts is the South Korea, where to handle the economic crisis the companies ranging from banks to shipbuilders cutting pays of executives and salaries of employees. The main goal of the companies as part of the advantage of across-the-board pay cuts is to avoid layoffs to keep skilled staff. Job preservation is the key benefit of across-the-board pay cuts and the biggest goal of the Korean government (Ramstad, 2009). Various top companies also used this strategy like FedEx, Hewlett-Packard and The New York Times. They squeezed the base pay of their staff members. However, larger cuts have been made from the senior executives’ salaries and smaller cuts from lower level employees’ salaries. The aim of the companies was to keep skilled employees, avoid layoffs and reduce the labor costs to handle recession (Mcgregor, 2009).
Benefits of Reduction in Force (Mass Layoffs)
Peng (2016) specified that the U.S. companies to handle economic crisis move to mass layoffs. However, other countries’ companies are also involved in mass layoffs than pay cuts. In today’s diversified business environment, job cuts are not about the saving of companies from crises but they are considered as the tool of reducing the costs. In addition, mass layoffs are used to increase earnings by decreasing the head count. One of the benefits of the mass layoffs is that it enables the companies to prevent from crisis rather than adopting reactive approach. The mass layoffs are used as the radical and preventive first aid. The companies use the strategy of mass layoffs to restructure in an effective manner and to increase the productivity of the employees (Cascio, 2005).
It indicates that mass layoffs in comparison to pay cuts lead to high level morale and productivity as the pay cuts contributes to low morale and productivity. Another advantage of the mass layoffs is that it can be used as part of the business plan by the companies. For instance, Sears Roebuck & Company and Praxair, Inc. used mass layoffs as the part of their business plan. In January 2001, Sears cut about 3400 jobs to restructure its business, including shut down of 89 stores and various businesses. In turn, shares increased 30% in only six months. Moreover, Praxair, Inc. cut 900 jobs due to economic slowdown that led to increase in 30% shares. Mass Layoffs in comparison to pay cuts contribute to increase in productivity and competitiveness on aggregate basis (Cascio, 2005).
Advise to Japanese Expatriate Working in the United States
Despite the fact that the culture of the U.S. is based on the individualism and Japan’s culture is based on the collectivism, it is advised to Japanese expatriate working in the U.S. to use across-the-board pay cuts instead of mass layoffs. The main reason is that pay cuts will enable the company to keep skilled labor employed by the company as there is an issue in the U.S. of shortage of skilled labor force. As Gillespie (2015) provided a notion that skill gap is the major issue of U.S. companies. With the adoption of pay cuts strategy, the management will be able to cut pays at the top management level that will encourage the employees at middle and lower level management to show commitment to organization. It is advised to Japanese expatriate to start cutting the salaries from top and by himself. Higher pay cuts should be from the top management and minimum salary cuts should be from other employees.
In addition, the base pay of the employees should not be cut but the benefits and other bonuses to cuts costs and increase profits. The strategy of the across-the board pay cuts will enable the company to retain the employees on one hand and on the other hand, will help the employees to maintain their jobs. The strategy of across-the-board pay cuts is feasible in relation to the U.S. companies because of the Minimum Wage Act. The strategy of cutting salaries under the Act will provide the assurance to the employees regarding pay and will decrease the risk of unemployment (Pacitti, 2015). Hence, across-the-board strategy will be feasible by the Japanese Expatiate to follow to reduce cost, handle economic slowdown and to retain skilled labor force.
References
Cascio, W. F. (2005). Strategies for responsible restructuring. The Academy of Management Executive, 19(4), 39-50.
Gillespie, P. (2015). America's persistent problem: Unskilled workers. CNN Money. Retrieved from: http://money.cnn.com/2015/08/07/news/economy/us-economy-job-skills-gap/
Mcgregor, J. (2009). Cutting Salaries Instead of Jobs. Bloomberg. Retrieved from: http://www.bloomberg.com/news/articles/2009-05-28/cutting-salaries-instead-of-jobs
Olson, G. A. (2013). Creature of Our Own Making, A: Reflections on Contemporary Academic Life. USA: SUNY Press.
Pacitti, A. (2015). Raising the Minimum Wage Boosts Growth and Does Not Cause Unemployment. The Washington Post. Retrieved from: http://www.huffingtonpost.com/aaron-pacitti/raising-the-minimum-wage-_3_b_7152976.html
Peng, M.W. (2016). Global 3. USA: Cengage Learning.
Ramstad, E. (2009). Koreans Take Pay Cuts to Stop Layoffs. The Wall Street Journal. Retrieved from: http://www.wsj.com/articles/SB123603944366614685
Woodard, J. (2003). Human Resource Management. USA: Thomson/South-western.
