Of Profits And Pay Cuts | Why is EMC cutting workers' pay?
For the first quarter of the year, sales for EMC Corp. dropped 9 percent and profits fell 23 percent. When the company released the results, it also said it plans to cut the pay of most of its 41,000 employees across the globe by 5 percent.
That kind of move might seem almost standard in the current economic climate. But the Hopkinton data storage giant is still a very profitable company, with $205 million in net income for the quarter, and CEO Joe Tucci insists that he expects the IT market to improve in the second half of the year.
Why would an essentially successful, profitable company give employees an across-the-board pay cut? Different observers have some very different takes on what EMC is up to.
Officially, EMC offers up some standard rhetoric about the pay cuts.
After announcing 2,400 layoffs in January, spokesman Patrick Cooley said the company saw the recession getting even deeper.
Cooley said the move, along with a few other cost-cutting measures, should save EMC $100 million this year.
Permissive Environment
But to Gary Chaison, a professor of labor relations at Clark University in Worcester, what EMC is doing looks a bit opportunistic.
“They feel that there’s a climate for cuts,” he suggested. “They feel as if most workers will accept it fairly passively because they feel there’re lucky to have a job and there’s nowhere else they can go.”
Chaison said many companies are making similar cuts these days, whether or not they absolutely need to. He said he’s reminded of the early 1980s, when many companies were able to push their workforces into concessions more because it was common than because the particular companies were in any danger.
“Usually shareholders look favorably on benefit cuts and wage cuts,” he said. “That’s the same way they would react to mass layoffs—very positively.”
Mary Trottier, an assistant professor of management at Nichols College in Dudley, has a more generous take on the situation.
“There are companies that just use this as an opportunity to be ruthless, but I’ve never thought of EMC in that light,” she said.
Trottier said companies need to take action in advance to make sure they can withstand whatever the market dishes out in coming months and years.
“I think a lot of companies today must be looking at the GMs and the Chryslers of the world and saying ‘How could they let this happen?’ and ‘Are we letting this happen?’” she said.
Ultimately, the question of whether the pay cuts were the right move may come down largely to how sympathetic employees are to the story EMC is telling.
Cooley said that in meetings discussing the decision workers have accepted the idea that the pay reduction is a reasonable way to prevent additional layoffs.
In fact, he said, workers on the company’s internal social network actually suggested this sort of a move as an alternative to the sort of changes that were announced earlier in the year.
And once conditions improve, Cooley said, the company will immediately bring employees’ pay back up.
To Chaison, though, reducing employees’ pay absent an extremely compelling reason seems likely to lead to a reduction in morale. And when things turn around, he said, some employees may prefer to go elsewhere.
“They are taking a big risk in terms of worker loyalty,” he said.
It will be up to the workers themselves to decide whether he’s right.
Got news for our Labor Pool column? E-mail WBJ Staff Writer Livia Gershon at lgershon@wbjournal.com.
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