Small businesses start to cut salaries to survive Covid-19

Among the likely cost-cutting measures include freezing headcount, instituting unpaid leave, removal of some non-contractual allowances and benefits, forced annual leave and reduction in working hours per day


EMPLOYERS are beginning to cut salaries as the economic impact of the coronavirus pandemic begins to bite their bottom line.

The most hard-hit by the pandemic and the resultant Movement Control Order (MCO) are the small and medium enterprises (SMEs), who are now beginning to look into salary cuts to survive.

Based on the latest Department of Statistics numbers, almost half of the self-employed or owner-account workers reported that they are no longer working, and the 46.6% who are still employed reported a reduction of income. In fact, 35.5% of those still working said they have lost 90% of their income.

According to a survey by the Federation of Malaysian Manufacturers (FMM), more than 50% out of 419 companies (respondents) revealed that revenue had dropped by more than 50%. This has led to the inability of businesses to sustain their operations beyond three months, if the MCO continues to be extended and conditions do not improve.

FMM said given the inability of businesses to sustain their operations with the current workforce, some of the likely cost-cutting measures that employers would undertake in the next three to six months in order to preserve employment include freezing headcount (67% of respondents), instituting unpaid leave (59%), removal of some non-contractual allowances and benefits (59%), forced annual leave (59%), reduction on work days per week (39%), reduction in some benefits agreed in the collective agreement for unionised companies (34%) and reduction in working hours per day (29%).

“Overall, for companies that have to resort to pay cuts, the likely percentage cuts to be implemented by the different category of workers are as follows: Top management staff — 37.8% of respondents are likely to cut pay in the range of more than 10%-20%, while 22.7% are likely to cut pay in the range of more than 20%-30%.”

For managerial level staff, 36% of respondents are likely to cut 10% to 20% of the salary, while 28% are likely to cut pay in the range of between 5% and 20%. For executives, 54% of employers surveyed are likely to cut pay in the range of 5%-10%, while 51.7% of respondents are likely to cut for non-executive salaries in the range of 5% to 20%.

“Majority of companies in unionised environment (62%) are unable to negotiate to implement cost- cutting measures to save jobs, resulting in 48% of these unionised companies having to resort to retrenchment or lay offs in the event that the unions refuse to accept the cost-cutting measures such as reduction in working days or hours,” FMM president Tan Sri Soh Thian Lai said in the same statement yesterday.

The government has stepped in to help employers with a RM10 billion assistance package aimed at SMEs to subsidise some wages.

However, Malaysian Employers Federation ED Datuk Shamsuddin Bardan said many companies will have to cut salaries further if the MCO, which has shuttered many businesses for more than 30 days, continues for an extended period.

“The (salary cuts) rates are measured generally between 5% and 15%, and these are only the beginning. In the event that the MCO is extended further, companies have to take further action.

“As far as the executives are concerned, negotiations are important to see how the employees perceive the pay cut before employers could implement it as at the end of the day, companies have to still be ‘in business’ in order to pay salary,” he told The Malaysian Reserve (TMR).

He said the government’s three-month wage subsidy programme will help SMEs pay their 4.8 million workers, but the economic impact of the coronavirus could linger beyond the three months.

“The government offers a good lifeline through the wage subsidy programme, but the impact could remain beyond three months and when the time comes, the government needs to relook at the package and see if employers can be assisted further,” he said.

According to the Finance Ministry, 31,000 employers have applied for the wage subsidy involving 299,000 workers. It said 98% of applicants employ 75 people or less. The subsidy involves a fund of RM307 million.

For the employee retention programme, as of April 12, 6,900 business owners have submitted applications for some 47,000 workers.

Some RM28.6 million will be needed to fulfil these applications.

In March, Genting Singapore plc announced its executives and senior management have agreed to pay cuts to help to offset the impact of the coronavirus on its earnings.

Genting Malaysia has also closed the doors at Resorts World Genting since March 18 due to the coronavirus.

Satake Technologies Sdn Bhd MD Datuk Palaniappan Joseph, who is also a director at the Human Resources Development Fund, said companies have to be cautious of their operational capacity in implementing cost-cutting measures.

“Companies have to consider the best solution to ensure employees’ retention because it will be a primary concern post-MCO in order for a company to operate efficiently.

“Despite the crisis, companies need to look at post-recovery strategies, which also involves having the ability of the right and skilful people to operate,” he said. Palaniappan said with the current situation, companies are exploring various options to sustain their business, while salary reduction should be explored as one of the measures.

“In the short run, various approaches are being explored by companies and it is not a one policy fits all.

“According to the Code of Conduct for Industrial Harmony, the survival of the business is the primary factor, but the method to apply that results to manpower reduction should be explored as the last resort.

“But at the end of the day, if the businesses are unable to sustain their operation, salary reduction may be inevitable,” he said.

Palaniappan stressed that mutual discussion is indispensable given the current situation to ensure companies’ survivability and better addressed their cashflow.