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    8 Replies Latest reply on Oct 19, 2007 7:01 PM by stepmcm

    Reducing key employees salary

    stepmcm Newbie
      I hired my closest friend as vice president of my company about 8 years ago. This position requires managing 5 employees,minimal marketing (maybe one full day a month to talk to new clients) and keeping the current accounts happy.

      The current salary for this position is $100,000. The revenues are now down greatly and now I am struggling to just make payroll. Last October we had a very frank discussion about what they would do in the next year for the company as far as revenue growth. After a full year, they did not complete any of this. We lost a few key accounts and landed a few to replace lost revenue. I do not feel like they are performing their job as expected anymore. Unfortunately, this person supports their spouse, two kids and grandkids. There is no possibility of them finding another positon paying this salary.

      Should I decrease their salary and make an offer based upon monthly revenue, like a bonus every quarter if revenue expectations are met? Or bite the bullet and let them go? The last option is easiest, but not very honorable in my opinion. I am completely tapped out financially now though. By releasing this person the company will make about $10,000 per month instead of just breaking even or losing money.

        • Re: Reducing key employees salary
          LUCKIEST Guide
          The reason most people go into business is to make MONEY.
          Look at Joe Torre and the Yankees.
          When business is good it is easy to pay larger salaries.
          In business one should always have a business plan and a business forecast including cash flow.
          When you lost a few accounts and lost revenue, the companies that let you go did not worry about your company surviving. Unfortunately in business its a very competitive world and you have to look to the long term
          and the survival of your company.
          It is very hard to reduce people salaries BUT reduced salary is better than no salary.
          Especially if you tie in performance and revenue bonus.
          This is a good time of the year to clean house and start the new year in a more competitive position.
          Good luck, LUCKIEST
          1 of 1 people found this helpful
          • Re: Reducing key employees salary
            DomainDiva Ranger
            I would absolutely take the necessary steps to get your company back in the green and out of the red. Companies are in business to make money...not provide welfare. It is your employees job to make sure that their families are taken care of. You are obviously feeling guilty, but you are still providing a sort of corporate welfare for this person.

            If you need this person to make money now as well as in the future by all means reconstruct the salary bonus payouts. If this person is not going to make the comapny money he/she needs to go. NOW.

            As a business owner you must do what is right for the business. You have been more than just up to this point...the new point can not afford to be more than just...reality is setting in and its not pretty. So you can either retain your guilt or get down to the business of being in business. You spoke about being honorable, was this person honorable in their job performance? Was that poor performance part of the reson you are in such a fix?

            Stop blaming yourself and trying to fix people and their situations. It is what it is.

            Good Luck, DD
            • Re: Reducing key employees salary
              DallasPayroll Newbie
              Luckiest is exactly right. Lee Iacocca speaks about in the early 80's when he took over at Chrysler he had to negotiate contracts with the labor unions. In his negotiations he said "I have a lot of $10 jobs, but I don';t have any $12 jobs." He won the negotiations and saved Chrysler. Tell your employee I have a $75,000 job with bonus for certain criteria, but I don't have any $100,000 guaranteed jobs. Let him make the decision.
              • Re: Reducing key employees salary
                BDS INC Adventurer
                It's great you have compassion for a friend, but as a business person I am sure you realize that your business not only supports him and his family but you and yours and all of the other employees and their families.

                Bottom line business is business and if he has been unable to drive the revenue you need, it may be time to let him go. Or as someone suggested talk to him frankly about a very deep cut in salary. That will do one of two things, either motivate him to push forward and find more business to get the company more profitable or at the end of the day he may determine he needs to move on without you having to let him go.

                Good luck and remember friends are friends and business is business.
                1 of 1 people found this helpful
                • Re: Reducing key employees salary
                  stepmcm Newbie
                  Thanks for all the input. The advice I received here is the kick in the pants that I need. I guess Monday I need to have the talk.
                  • Re: Reducing key employees salary
                    Lighthouse24 Ranger
                    I see that this is already tagged as "answered," but one caution: If you have more than 15 employees and this person is over 40, you might be unintentionally walking into an age discrimination case. I'm not suggesting that you shouldn't take the actions outlined above -- only that a quick call to an attorney who specializes in employment law will help you take action in a way that protects you later.
                      • Re: Reducing key employees salary
                        stepmcm Newbie
                        I did not think about the age discrimination issue. But I have documented all the reasons why I need to take action. Very good answers. Thanks.
                          • Re: Reducing key employees salary
                            Lighthouse24 Ranger
                            It's great that you have solid documentation, and if you eliminate the position, you'll probably be fine. If you hire someone younger, however, good cause may not relieve you of a discrimination case. Racial, sexual, and religious discrimination cases get all the media attention, but age discrimination cases are the ones attorneys love to take because they pay the most. 10 of 12 people who show up for jury duty on a civil case are old -- they often have total empathy for the defendant, and being "right" doesn't mean you'll win. Obviously, it's your business and your decision -- just wanted to offer a word of caution. Good luck!