How big a pay cut would you take? 6

[ajack1]

Having done the festive rounds meeting up with friends and family I don’t normally see on a regular basis I was very surprised how many were already feeling the recession.

Throughout a variety of jobs in different sectors many were on either on extended holidays, working a short week (some on full pay some not) or facing pay cuts and or redundancy.

I have not heard of short working weeks or pay cuts in the UK for many years now and it got me wondering, how many on here would take a pay cut (and how much) or a short working week in order to save their, or others jobs?

Or how many feel they are totally safe, or could go out and match what they are on in the current market place, or even would not take a pay cut under any circumstances?

 

[youngstructural]

I agree wholeheartedly with the idea that ALL your work efforts must have compensation. My only possible grey area here occurs when you do something out of personal interest which happens to be of use to the company (such as summary sheets, spreadsheets, articles, etc).

No gain, no pain. The other way round just makes no sense... I'd rather read a book than work for someone else's books.

Cheers,

YS

B.Eng (Carleton)
Working in New Zealand, thinking of my snow covered home...

 

[apsix]

Is keeping your job a form of compensation?
I'd rather work 4 extra hours a week (for no additional pay) than reduce my income by 10%.

 

[oneintheeye]

fixed fee jobs where you work free overtime to make the company a profit and deliver is fine (at least short term).

Free overtime which the company then bills at the full rate, i.e. the rate arrived at by applying a multiplier to your hourly salary rate (which they are not paying) is disgusting/unethical/i would suggest bordering on the illegal. If I ever work for a client organisation in the US (unlikely I know) I would ask for details of additional costs incurred above the cost estimate and I would think the client could be in their rights to refuse to pay.

 

[moltenmetal]

ajack1: if the business isn't making a profit, they'll be either laying me off or they'll be into my pocket via pay cuts, no/low salary rises etc. So there's my shared pain for my share of the gain. A loss is a loss: they don't need to hand me a "loss-sharing invoice" to match my profit-sharing bonus!

I treat my uncompensated work is a business investment. I don't make that investment with zero expectation of a return, any more than I would if it were a simple monetary investment.

I'm not denying the owners their piece of the profit- they deserve it too- but I am denying them MY piece!

If my company carries my @ss through a slow period, I have no problem paying back that favour AFTER it's been granted. To pay that sort of debt "forward" is to put more trust in company directors and shareholders than my previous personal experience, and that of a great many colleagues, would indicate is sensible.

Fortunately, I work for a company that gets all this. AND like virtually all of my co-workers, I'm a co-owner. I see both sides of the owner/employee divide very clearly, thanks. No need for me to be a sole proprietor- it'd be frankly impossible for me to tackle the interesting work that I do if I didn't have the "company" of a company!

herewegothen: to fail to bill a client for billable work just because you aren't paid for it personally is stupid. There is nothing unethical about a company billing their client for billable work donated to them by their employees, provided it meets the criteria of billable stipulated in the contract. It IS unethical to demand or compell your employees to work time for zero compensation, whether you bill clients for the time or not.

Volunteering for your employer might be seen as having some benefit to you, in future or maybe in heaven- but donating your time to your employer's clients is just plain dumb. They won't even notice!

It doesn't matter a mote how your company bids or bills its work. In a straight time and materials billing situation it's just easier to see where the profit comes from.

 

[Ztrain1985]

Food for thought:
My company bills me out at about 2-3.5 times what they pay me. Assuming the overhead for my employment is half what they pay me, they make anywhere from 33% to 133% on me (assuming my projects come in at budget and not under-budget). If I come in under budget, they make even more, and if I come in over-budget, I start to look real good for being fired.

This also doesnt include overtime which is free thanks to salary based pay... so the potential gains of the boss is quite evident in my opinion.

 

[ajack1]

I am not sure you do see the owner/employee divide very clearly Moltenmetal.

As an owner when the company isn’t making money you do not get low salary rises, you get no salary and you have to personally fill that void, or you still take a salary pay tax on it and then have to personally fill a bigger void. Also if the company goes bust you are not only left with no job you are also left with the burden of all the debts, there is a huge difference.

You seem to have a fantastic set up with all the gain and none of the pain but you still say “If my company carries my @ss through a slow period, I have no problem paying back that favour AFTER it's been granted. To pay that sort of debt "forward" is to put more trust in company directors and shareholders than my previous personal experience, and that of a great many colleagues, would indicate is sensible.”

So you are happy for the company to carry you and trust you not to leave after doing so, but you are not willing to trust them, that does not sound like the words of a co-owner to me.

Ztrain1985 I think you will find you are miles out with your overhead idea of half of what they pay you. By the time you take into account all contributions, tax, insurance, holidays etc and then add the percentage you have to pay for non billable staff, sales, admin, accounts, HR etc and then add your percentage for running costs, rates, providing office and equipment, insurance, heating the list just goes on you will be looking at a far bigger figure. A 5-10% margin is very good these days.

 

[Ztrain1985]

I honestly dont think I am off that much. Consider it this way. I get paid .5X dollars a hour. Client A agrees to pay X dollars an hour for an Engineer. Client B agrees to pay 2X dollars an hour for an Engineer. (im withholding the actual numbers but the ratios are correct).

I am an engineer and get billed out at 2 different rates at these 2 places. If they are not making a profit by billing me out to Client A, who pays almost half of what B does, then doing work for our primary client A would be a loss. This clearly is not the case, because the company is making money, and I still have a job. Those 2 conditions would not be possible if my work was losing money by default.

With that said, I can say that the company must make SOME money billing me out at X dollars an hour. So when they bill me out at 2X dollars an hour, and since the overhead is a static and predicatable value independant of my pay rate, their profit has to increase a full X.

 

[moltenmetal]

ajack1: you misunderstood me in part. I have no difficulty trusting my current employer whatsoever- they've earned my trust. And since I'm part owner, in a sense I am in part my OWN employer. By virtue of my ownership I am afforded information and a measure of control over my own destiny here that no mere employee can claim.

I give them any uncharged hours and the difference between my base salary and what I COULD earn elsewhere as a business investment. During good times I receive a reliable monetary return on that investment in the form of profit sharing and dividends. During bad times, it's an investment made in hope of future return, since there is no profit to share.

During VERY bad times, they repay the favour by carrying my base salary even when there isn't enough work to go around. The corporation chooses to do this not out of love or loyalty to me as a human being- corporations are NOT capable of either love OR loyalty because they are NOT human beings! The corporation views retaining me in slow times as a business investment. It's an investment in my retained knowledge and skill, which has in past and will in future be useful to them in generating yet more profit.

I have not been GIVEN any ownership- I bought it, just like everyone else here did. Some of the original owners took shares instead of salary for a time, but they earned their shares too- no different than if they'd paid cold hard cash for them. For me there was no pressure to buy, but neither was there a reduced price simply because I was an employee. There's only one type of shareholder here.

Contrary to your assertion, owners of shares in a corporation are not left with the debts if the place goes broke, unless they borrowed from others to buy the shares. Their liability is limited to the value of their investment.

I DID misplace my trust in other, previous employers. I "paid forward" the investment of deferred earnings and uncompensated overtime, even though I was not an owner and had no profit sharing. I gave them plenty of my time which they profited from directly, only to be laid off the minute their business turned sour. I learned my lesson the hard way.

Ztrain1985: overhead is a very real business cost, as is payroll burden. Those accountants, salespeople, CEOs, building heat and light, property taxes etc. don't come for free. Depending where in the world you work, and on your salary, the payroll burden alone (ie. real costs of employment other than salary: benefits, healthcare, pension, payroll taxes etc.) can range from 15 to 100% of your salary.

Most companies who sell man-hours for a living are not making a great deal more than about 15% of your bill-out rate as profit, unless they're in a very non-competitive industry, they have a very high overhead necessitating VERY high bill-out rates, or they're really screwing you on salary. That profit could be ~50% of your salary by simple multiplication, but it's still only 15% of revenue.

...unless you're giving them the work for free as uncompensated overtime- then that 50% of your salary becomes 150% on every O/T hour- unless they're charging an O/T multiple billing rate in which case it's even higher still. Your boss, who probably DOES get profit sharing, and the owners who obviously DO share the profit, are laughing all the way to the bank. And they're not laughing with you- they're laughing AT you.

 

[ajack1]

Moltenmetal, maybe I did just misread your earlier post or maybe what you are now saying is slightly different, I apologise if it is not the latter. You seem to have a very good set up and I am sure the company must value you very highly to offer what they do, that mutual trust and willingness to both give and take is very rare indeed and not just from the companies side.

I fully accept that you may carry no liability for any debts as a shareholder in a corporation, I simply do not know. What I do know as a 50% owner of a limited company in the UK I do for any loans personally secured by me, basically this is how you have to fund the start up and early development of a company with directors loans, some secured against my home, but that was a personal choice.

I always try and be fair to staff, but it is not always easy, for example last year we had our biggest customer go into receivership, basically we lost all monies owed to us by them, to the staff this meant no bonuses or no possibility of a pay rises in the coming year, to me it meant about a 35% pay cut, as for tax and cash flow reasons I take a very minimal salary and what I can in dividends, but guess who feels hard done by?

It just really gets my back up when I read the constant complaints on here about management/ owners all being money grabbing scum of the earth and things like the assumption that because a company charges up to 3.5X salary they are somehow making 133% profit margins, clearly some people do not have the first clue about what it takes or the costs of running a company.

 

[Ztrain1985]

Since your basically quoting my figures, im assuming your talking about me. And your right, I dont know the full overhead involved in running a buisness.

But then explain to me the failure in my logic.

When the company can bill be out be at 2X my salary and make a profit, how can they not be making substaintially more when they bill me out at a higher rater. I'm doing the same work, in the same building, with the same equipment, same people, same process, only a different clients, for 3-4 times my salary salary. How is all that not extra profit?

 

[KENAT]

Ztrain, probably because they use the 'extra profit' on those jobs to balance the lower profit on your other jobs.

KENAT,

Have you reminded yourself of faq731-376 recently, or taken a look at posting policies:

http://eng-tips.com/market.cfm?

 

[Ztrain1985]

I think we are just going to have to agree to disagree. Ive seen the project reports for my projects so I know the multipiers for what I work on in regards to cost per hour and billing rate.

Maybe companies are different.

 

[ScottyUK]

It just really gets my back up when I read the constant complaints on here about management/ owners all being money grabbing scum of the earth...

Interesting that you bracket owners and managers together. I guess in your company you possibly have a dual role but in most larger companies they are totally different animals, assuming that there are actual 'owners' and not public shareholders. In my industry there are few companies in true private ownership, and the shareholders are an anonymous group so it is impossible to comment whether they are good, bad, or indifferent. Directors are sometimes a legitimate target of employees and shareholders although it tends to be the shareholders who have the louder voice. You would understand why employees receiving a zero raise or facing redundancy would be dissatisfied with directors taking large bonuses at the same time. I worked for Enron, so you can imagine my feelings toward Messrs. Lay, Skilling, Fastow et al.; I would say those feelings are entirely legitimate. Managers are usually invisible to shareholders but obviously feature prominently in the lives of employees. I admit to occasionally heaping criticism upon bad managers, of whom there are far too many in the UK, but I'm equally prepared to heap praise upon the few good managers we have. I'm lucky to have worked for three bosses who I had total respect for; I've worked for several others who I could happily never see again. Rarely has criticism of management been caused by money, it has always been down to the way they have treated staff. In that respect I make no apology at all because treating people fairly is one of the most important qualities a manager must have.


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If we learn from our mistakes I'm getting a great education!

 

[GregLocock]

Speaking as a shareholder of many large companies, I want 'my' employees to squeal a bit, but I also want to make sure the good guys get rewarded (one way or another) sufficiently to stay on, and the useless ones are sufficiently discouraged that they leave.

I have yet to see a pay system that manages that.

Speaking as an employee of a meatgrinder of a company, I'm really not tempted to give anything away, although I'll swap time off for pay, due to our stupid tax rates.




Cheers

Greg Locock

SIGlease see FAQ731-376 for tips on how to make the best use of Eng-Tips.

 

[ajack1]

Ztrain1985 try thinking off it this way. If you say the cost of employing you is what they pay you, then think of the cost of you working as the direct cost of being at work, maybe a gallon of petrol plus a factor of .5 and £2.50 to replace update clothing, so once you have earned £10 a day you are in profit, I am sure you operate on a huge profit margin. Well you would do if you didn’t have to live anywhere, feed yourself etc etc. I reality I would guess you work somewhere around the first 6-7 hours a day to pay all your expenses and it is only the last hour or two that make you in profit, not the last 7 ¾ hours.

It is much the same for a company, you do not make profit every hour of the day, you make profit when your incoming expenses are greater than your outgoing expenses. It could well be and probably is at a factor of x2 if that was the only work they got they would lose money, but at a factor of 3.5 you would not get enough work to make money either.

 

[moltenmetal]

ZTrain1985: I may be wrong, but it sounds to me that you are confusing margin with profit.

Gross margin is the difference between raw cost and revenue. Some margin calcs are done on the basis of overhead cost estimates, while others are not. I don't know what numbers are on your project reports.

Aside from a sole proprietorship or very small partnership, (ie. people consulting from their own homes), I'm not aware of any business which is so fortunate that it can be profitable at a bill-out rate of 2x salary. But sure, businesses can generate gross margin at 2x salary!

Profit is simply this: take all the costs of running the business for the year, and subtract them from all the revenue earned during the year. This number is what I'm talking about.

Unless you and all of your colleagues are 100% billable 100% of the year, your firm had better be making more than 15% margin, including a measure of overhead, on your bill-out rate.

If they aren't, they won't be earning 15% profit on revenue at the end of the year. Your salary and payroll burden for every hour you are not billable is an overhead too.

If low profitability persists long term, the people whose money is invested in providing you a job will be thinking carefully about turfing you and your colleagues out on their @sses and finding somewhere else to invest.

 

[Ztrain1985]

I hate to keep beating this horse, but let me give an example.

For the first 3 weeks of project A, I was the only one working on it, as shown on the project report.

My hourly rate is X. My billing rate for that client is 3.5 times my hourly rate for (3.5X). The average cost per hour is (1.3X).

So I get paid X. My cost to the company is 1.3X. The Company bills at 3.5X. They make a profit so long as I come in at the prescribed number of hours they have allotted me for the project (which I make sure I always do through un-recorded overtime, not that I get paid for overtime, but it just makes me look more efficient). Our other clients are more reasonable, like 1.5 to 2, but this one in particular is high.

Now I want to make it clear that I have no problem with what they are doing. They pay me well (not as well as public sector for the work, but Im happy with the income I make). They are also the bosses, and in that sense they are doing me a favor by employing me. If it bothered me, I’d leave. Im just saying, they pocket a lot of money from the work I do.

If I use up all the hours, billing rate is far greater then the average cost per hour so they make a profit. If I don’t use up all the hours, they make a profit on both the hours used and un-used.

We also do bill out almost all of the time. The only things we don’t bill out to clients are vacation and holidays, which is part of the average cost to the company rate I said above. Even the accountants and secretarys bill to projects when they do something for me, which is also shown on the reports.

 

[ScottyUK]

The horse doesn't care. It died a week ago.


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If we learn from our mistakes I'm getting a great education!

 

[moltenmetal]

Ztrain: yep, you're confusing margin with profit.

Your client may be billed for some admin time and costs, but not all. In some firms, the photocopier is the all-star employee of the month because it generates so much profit! Other firms don't bill for photocopies etc.

Your VPs, president, CEO, sales guys etc. don't bill to your job, nor does your client get separate bills for heat, light, property taxes etc. etc. Your own time working on proposals etc. is also an overhead, while your vacation etc. go into your payroll burden. These very real costs are overheads which eat most of the difference between your 1.3x salary payroll burden and your 2-3.5x salary bill-out rate.

I'm not saying they're not profiting on your work- they MUST if you are to stay in business long term. I just think you're overestimating the real profit by a significant margin (no pun intended).

The profit on your uncompensated overtime is stupendous if the work is reimbursable (time and materials) and you BILL the client for your time.

The only time being under budget in labour hours is of benefit is if your firm is on a fixed price or some kind of benefit sharing ("target price") arrangement. Otherwise, going under the labour budget is simply not realizing revenue.

If your firm is compensated T&M and you don't book your O/T hours to the project, you've just given your client a big present for which they won't even say thank you! If you're fixed price, you've given that present to your own company's owners, as either profit or minimized loss. They also probably will not thank you but may notice- if you point it out to them.

Some customers get billed at an all-inclusive bill-out rate, and then don't get billed for certain things. Some get billed at an "overhead cost" rate plus a pre-approved profit percentage. The commercial details are between your firm and the client in their negotiations and contract language- you may not be party to them.

 

[KENAT]

Well, back on track to the OP. It got mentioned last week that pay cuts may be a possibility here. No idea of how much or if they're temporary etc but either way, it's gonna hurt.

So I'll have to really think about how much of a pay cut I can afford. Due to my slightly unusual circumstances I'm pretty much stuck working out of town for the forseable which at my current place costs something like 1/4 of my current Gross Pay over the year (more in Summer, less in Winter and maybe a bit less right now with Gas prices). So a relatively small pay cut is amplified for me.

And before anyone says it, yes I'm looking elsewhere.

KENAT,

Have you reminded yourself of faq731-376 recently, or taken a look at posting policies:

http://eng-tips.com/market.cfm?