Saturday, November 22, 2008

Will there be layoffs? Let's try this first!

OK, this is absolutely not the view of my employer, my employer is not contemplating layoffs, but let's be realistic, nobody knows what the future holds, right?

So if things get so bad that a company is considering layoffs, here is an alternative I heard several years ago from an old boss. You've heard of the graduated income tax? This is the graduated income cut. The idea is that some people in the company make a ton of money (as one CEO said, "They pay me more than I know what to do with") and others make a lot less. The CEO-class of annual income could tolerate quite a large pay cut with a little inconvenience, whereas for the latter, even a 5% cut could be quite painful.

So, instead of doing a 10% pay cut across the board (as was sometimes done at HP), what if we said
  • At $250,000 or more annual income, you can tolerate a 20% pay cut without any real "pain."
  • At $50,000 or less, we probably don't want to cut your pay at all.
  • For ranges in between, we'll cut your pay by an amount that varies linearly with your annual income in excess of $50,000
Let me give some examples:
  • $50,000 and below: 0% pay cut
  • $51,000: 0.1% pay cut
  • $52,000: 0.2% pay cut
    ...and so on...
  • $60,000: 1% pay cut
  • $70,000: 2% pay cut
  • $80,000: 3% pay cut
    ...and so on...
  • $100,000: 5% pay cut
  • $150,000: 10% pay cut
  • $200,000: 15% pay cut
  • $240,000: 19% pay cut
  • $249,000: 19.9% pay cut
  • $250,000 and up: 20% pay cut
Call me a socialist, but I think the 5% lost by the $100,000 guy will hurt him or her more than the 20% lost by the $250,000 guy.

Now if you're in an industry or a part of the country where $50,000 is a ton of money, well, you can slide the figures around to where they make sense. But this is just a Dumb Idea™ anyway with no traction I've ever heard of -- except at one, ah, exceptional company.

The algebra for the above is like this. Let
A = current annual income
N = proposed new annual income under this graduated pay cut scheme.
  • N=A if A≤$50,000
  • N=0.8A if A≥$250,000
  • N=A(1 - (A-50000)/1000000) otherwise.
There's probably a generalized formula if one wants to have a linear increase in the pay-cut from 0 at annual income A0 to Pmax at annual income A1, but it's now time for me to drill holes in the walls so we can hang aprons up on them.

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