Dear Aunty B,
I am doing budgets and need to cut. I have an employee who I thought would be a star and paid too much when I hired her. She now gets over $100,000 for a nine-to-five job, which she does not do well and is not very engaged.
Through the boom I tolerated it (I know I shouldn’t have). But in the new financial year I want to reduce her salary to what she is worth – and what others in the market would pay her for the job she does.
There are also performance issues.
Can I tell her I am reducing her salary by $30,000 without any problem?
And what if she says no? Do I then ask her to leave?
Ready to Tackle the Hard Question,
Dear Ready to Tackle the Hard Question,
That’s a tricky one. Two points before we answer.
One, don’t forget, not everyone is a star and all companies need their B-team players.
Second, if there are performance issues, you are better off making a clean break and moving the person on.
Think of it like Cameron Herold – you are stealing every day of their life if they are on the wrong bus.
The reduction in salary is a fundamental change to the contract of employment. Unless the employee agrees, any attempt by the employer to do so unilaterally will probably entitle the employee to consider herself constructively terminated, and make a claim for whatever termination benefits she might be entitled to.
This might include an unfair dismissal claim (if she is an award employee or earns under $106,400 a year. That $106,400 includes superannuation, cash salary and other guaranteed benefits, but excludes discretionary bonuses.
Peter Vitale, our legal adviser, suggests approaching the employee with the difficulty and perhaps trying to agree to a phased in reduction. She will likely have commitments that she will need time to reorganise.
If agreement can’t be reached then you need to manage her performance and deal with her accordingly. The only other alternative, as I said, is to terminate her employment immediately.
Your Aunty B.
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