Shared Sacrifice

If you’re wondering how tough times have been for small business, the answer is: really tough.

CNBC reported last week on some striking numbers from a new survey conducted by Citibank. Over the past few years, 69% of small-business owners have used their own money to help the enterprise survive.

What’s equally striking is that employees are joining in the sacrifice. “More than one-third of owners (38%) said their employees worked overtime without pay,” it was reported. “Eighteen percent said employees either missed paychecks or had paychecks delayed.”

Peter Drucker may well have been surprised by this level of employee belt-tightening, for he considered wages to be fairly inflexible, even in hard times. That’s because most people have fixed debts, such as mortgages, so they can’t accept much of a cutback. What’s more, pay cuts can offend people’s sense of dignity.

“Hence the adjustment will take the only form possible: lower employment both of men and of capital equipment,” Drucker wrote in The Ecological Vision.

But one factor that may be shifting the calculus these days is that small-business owners are leading from the front. The Citibank survey found that fully 54% of the owners surveyed had skipped at least one paycheck themselves to keep the business going. And 23% have skipped an entire year of pay.

That’s a lot different from the mind-set Drucker condemned when he wrote of the CEO who chooses to “give himself a bonus of several millions at the very time at which the pay of the company’s other employees is cut by 30%.”

Whether small businesses save themselves with cuts out of the boss’s pay or cuts of employee pay—or simply employees—Drucker was emphatic that firms must be able to adjust the levels of wages they pay up or down. Otherwise, the business will not survive severe setbacks.

“Which way is more economical and more likely to help the enterprise weather a storm depends on the industry,” Drucker wrote in The New Society. “But a flexible labor burden is vital to all industries and to all enterprises.”

Would you be willing to take a cut in pay to help your organization get through hard times? Why or why not?