How To Successfully Reduce A Commission Rate Or Paycheck.

Reducing an employee’s paycheck or commission is a tough thing to do, but it often must be done, especially in today’s declining economy and in light of reduced revenues. There are even times when you must reduce salaries. It is never easy but there are ways to make it palatable and, therefore, acceptable.

1. If possible (and if it’s compelling) come to the table with hard financial information demonstrating the bloodletting that is occurring and why it is essential that you make these cuts. Information supporting the decision makes it more acceptable to your employees. Give them as much financial data as you can to demonstrate the problem.

2. Explain other actions you are implementing to reduce overhead and improve cash flow and profitability. What you, as the owner and boss, are personally sacrificing along with your employees is very important and needs to be substantial. You need to be feeling more pain than your employees; they will respect you if you are and despise you if you are not. Taking the beating shoulder-to-shoulder, in the foxhole, fighting the battle together until better times return. In other words, sell the Mercedes and share the pain.

3. Talk to your employees in a group, tell them the truth, ask for their help and understanding and promise to do whatever you can to restore the reductions as soon as possible. Answer ALL their questions as accurately as you can and as honestly as possible. Then, have individual meetings with anyone whose compensation or salary or hourly wage is being reduced. Empathize with them.

4. Make no specific commitments about what you are going to do in the future, it depends on too many factors that are not in your control. Employees will have to accept the situation in good faith and wait and see.

5. Report back frequently about how things are going. Give them the information, let them know what you are doing to improve the situation and conditions. Treat them as if they are your partners, because they really are.

6. Resist the urge to make similar percent reductions across the board; it hurts the lower income people more than the higher earners. Simply do it category by category, treating similar jobs similarly, or similar status the same. Just be careful of how you do it, make certain it is fair and makes sense. You will be judged on your fairness.

Make certain your employees all know and understand the turnaround program. This will usually require some major downsizing and complete removal of positions. If the remaining employees believe in your plan it will be successful. If they don’t, you have a very difficult battle ahead of you, including keeping the remaining employees happy in spite of their pay reductions. Sure, they’ll be happy they have a job, but be assured they will either be looking elsewhere or complaining bitterly, even if privately. Not good for the business.

Yes, it is a tough situation, but when done correctly the remaining employees will pull together, close ranks, and dig in, supporting your efforts and increasing the likelihood of success.