This industry can, and should, be more creative than jumping straight to pay cuts

Instead of pay cuts, businesses should first introduce loans that see employees repaid down the track with competitive interest rates, argues Henry Innis.

There’s a lot of debate in the industry at the moment about one thing: pay cuts.

Pay cuts are a response to a problem: we’re an industry that is notoriously creative in how we manage cashflow and perhaps not as rigorous in maintaining working capital as we should be. Tough times call for tough measures.

Usually, in recession, there are redundancies. It seems the prevailing mood today recognises (rightly) that we should try to prioritise employment over anything.

That is a good thing.

It’s fair to make those cuts if you have to. And inevitably, there will need to be stand downs and other measures unique to companies, particularly small ones. Executives first and foremost should bear the brunt of this pain, where possible.

We must be realistic about this. But as leaders, we need to lead — and as creative leaders, find ways to lead more creatively.

Here are some interesting ‘facts’ about this period:

  • Most employee discretionary spend will decrease;
  • Which makes pay-cuts more doable for certain categories of staff (not the junior members, who are probably underpaid in most circumstances); and
  • Cashflow-wise, businesses will need to weather the storm, but recovery will bring boons as well.

Perhaps it is time to recognise that, if we ask for pay cuts, we should structure them to reward employees sacrificing their pay for our short-term. After all, we’re a creative industry. We’ve worked out all sorts of crazy rebate schemes (which I don’t love, but whatever). Why can’t we do so for our staff?

Here’s the idea in its simplicity, which I’ve pilfered from a startup named CityFalcon:

  • Pay-cuts are structured as a loan to the business with a competitive interest rate
  • Should the employee be made redundant, the loan begins to be repaid over a 24-month period with interest, keeping a level of cashflow in the business whilst paying the employee
  • Once the business reaches a level of working capital, employees are repaid with their interest
  • Because agencies typically generate cashflow quickly in good times, this is a fairly simple model and likely cheaper and quicker than the banks
  • And employees share in the success of rebuilding the company for recovery – the faster employees help the employer get back, the faster they get their money plus interest back

I know these are tough times for everyone. There are probably a tonne of things wrong and reasons why this idea can’t be done.

But please, let’s do what we preach in our industry — get creative and collaborative with each other — rather than shutting down every suggestion before it even has the breathing space to be possible.

Together, we can do this.

Henry Innis is a partner and founder of Mutiny


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