RETAIN Series 7: Exhaust the Ladder Before the Exit: Pay Cuts and Dignified Exits

In brief:

• The last three rungs, in order: tiered pay cuts, voluntary buyouts or early retirement. Layoffs come last.
• Pay cuts start at the top. Leaders take a larger share and the cuts cover bonuses and equity, not just base salary. Many people would accept a cut but employers rarely ask.
• A voluntary exit has to be voluntary: terms at least as good as a layoff, no pressure, and time to decide.
• Layoffs are not ruled out, but come last and still require minimum terms: a published sequence, notice, severance, health coverage, and a personal conversation before any announcement.

Careful readers of the past articles and posts on RETAIN might have noticed that this is the third article dedicated to E. The series has run longer than I had first planned but, to be frank, the ladder deserves all the space.

The last article covered the first three rungs: freeze hiring, reduce contractors and vendors, and furlough or cut hours. This one is about the last three: tiered pay cuts, voluntary exits, and layoffs, which come last.

A quick reminder of what the ladder is. It is a disclosed, ordered sequence of cost levers. A company works through them one rung at a time, from the least harmful to the most. The order is published in advance, so anyone can check that it was followed.

Rung 4: Tiered pay cuts

Rung 3 already touched the pay through reduced hours. Rung 4 involves a direct pay cut. The important thing is who carries what burden.

The principle is simple. Leaders go first and they take a bigger share, meaning the higher the pay, the larger the percentage. The lowest-paid get the lowest cuts – or none at all.

Would employees accept a cut at all? Steven Davis and Pawel Krolikowski put that question to people who had just lost their jobs. They surveyed new unemployment insurance claimants in Illinois in autumn 2018. Around 60% of those laid off permanently said they would have accepted a 5% pay cut to keep the job for another year. More than half said yes to 10% and one third to 25%. At the same time, fewer than 3% said their employer had discussed cuts in pay, benefits or hours as an alternative. The authors estimate that around a quarter of the layoffs in their sample could have been avoided by cuts acceptable to the workers. That estimate relied on the workers’ own view of whether a cut would have saved their jobs. The employers’ views may have differed.

Employers do have their reasons. Truman Bewley conducted 336 interviews with managers, labour leaders and others in the northeastern US in the early 1990s. They told him that layoffs “get the misery out the door”, while pay cuts dishearten everyone. They also said a pay cut usually saves too few jobs to replace a layoff. But Bewley also found that pay can be cut with little damage to morale if it saves many jobs. When pay cuts did happen, they were usually across the board, or limited to the higher levels, to keep the pay structure fair.

What matters just as much is how a cut is explained. Psychology Today described a study by Jerald Greenberg of a company that cut pay at two plants. At the first, the managers gave a short explanation and showed little sympathy. Missing inventory in that plant more than doubled. At the other, the managers explained the need in detail and said they regretted it. Missing inventory rose only modestly.

Gravity Payments, a Seattle payments company, is an interesting example. In March 2020 its revenue fell by about half. The CEO, Dan Price, asked the roughly 200 employees for ideas. The answer was an anonymous pay cut, with each person choosing the size. Some took 5%. Others took 30% to 50%. Ten asked to go without pay, and Price cut his own pay to zero. In all, 98% took part and Price put the average cut at over 20%. He said the alternative was to lay off about 20% of the staff. By the summer of 2020, as business recovered, Gravity was paying the money back. The average employee got about $4,300 in back pay. Gravity also took a federal Paycheck Protection Program loan, so the cuts ended up not being the only lever.

To be precise, accounts differ on how freely the employees chose their cuts. Gravity said the people had proposed the cuts. In Dec’22 the Seattle Times reported that ten employees said they had been given a choice between a pay cut and layoffs, and that those who opposed the cut felt ostracized. I can’t tell which account is right, so perhaps the lesson here is this: if the alternative is a layoff, say so plainly, and don’t call the cut voluntary.

The US steelmaker Nucor built the idea into its pay system. Much of its pay is variable, and the company still describes a long-standing practice of not laying people off because of lack of work. A 2011 trade report described pay at its Oak Creek plant: shop-floor workers earned about $24 an hour when the plant was busy. In slow periods, pay could fall below $12.50. In 2009 Nucor lost about $294 million, its first year without an annual profit. It had about 20,000 employees and laid off none due to lack of work. People were kept busy with training, landscaping, and building maintenance. A production manager at the plant described the practice this way: “It’s not a policy, but it’s a practice.” He added that the pay fell sharply through shorter hours and smaller bonuses, and that everyone understood they kept their jobs and benefits in return.

The pain was shared and ran upward as well. In the 2001 downturn, Dan DiMicco, Nucor’s president, said there would be no bonuses for senior executives. Those bonuses usually made up 66% of their pay. Some employees were working four-day weeks at the time. DiMicco described the policy as “share the pain and share the gain”.

In spring 2020 many leaders cut their own pay. By late Apr’20, 342 companies in the Russell 3000, about 11% of the index, had announced cuts to executive base pay, according to a Conference Board report. Among those that cut CEO pay, 27% cut the base salary to zero and 19% cut it by half. The cuts were tiered: the percentage rose with the salary level.

But that report covers the base salary and cash retainers only. It does not cover bonuses or equity, and these often make up a large part of the package. Marketplace gave an example: Disney’s Bob Iger had his $3 million base salary cut to zero, against a total compensation of $47.5 million. David Lewin, a UCLA professor, called such cuts “largely symbolic”. JUST Capital found a similar pattern. Of 33 large companies that had announced executive or board pay cuts, nine had avoided layoffs and furloughs as of May 21, 2020. More than two-thirds of them had also announced furloughs or layoffs.

A more recent case is Intel. In Feb’23 it cut base pay on a sliding scale: 25% for the CEO, 15% for the executive team, 10% for the next grades and 5% for the grades below those. The lowest grades were not cut. In Aug’24, Intel announced it would cut about 15% of its workforce. Al Jazeera noted that Intel also gave stock a larger share of executive pay.

So a leadership cut shows solidarity but it rarely saves many jobs by itself. In RETAIN it’s where the rung starts, not where it ends.

RETAIN proposes these minimum terms for this rung:

• Leaders go first, and they cut the most. The percentage rises with pay, and it applies to the whole package, including bonuses and equity, not only base salary.
• The size and the end date are announced up front, with a stated rule for paying the money back.
• The lowest-paid are protected: no cut, or a much smaller one.
• The company explains why the cut is needed (with numbers) and what would happen otherwise. If the alternative is a layoff, it says so and does not call the cut voluntary.

Rung 5: Voluntary buyouts and early retirement

Rung 5 lets people choose. Some employees want to leave, or retire, or start something new, and the main thing holding them back is money. A good package may work for them and it can also save a job that someone else needs.

Microsoft is perhaps the most notable recent case. In Apr’26 it announced its first voluntary retirement program for ca. 8,700 long-tenured US employees. More than 30% of them took it. In Jul’26, Microsoft laid off ca. 4,800 people, around 2.1% of its workforce. In Oct’26, it announced a Voluntary Exit Offer for up to 60,000 employees, roughly a quarter of the workforce, on participating teams in the US, the UK, Canada and India. The terms are similar to Microsoft’s standard severance. Employees have until early December to decide, and those who accept will be leaving at the end of the year. Microsoft expects fewer than 5% of those eligible to accept. As a side note, since the subject is so much in the news, it has also said AI is not driving the buyout programs.

Now look at the sequence. A voluntary program in April, a layoff in July, a voluntary offer in October. That is not the order of the ladder, which puts voluntary exits before layoffs. I am not saying Microsoft broke some rule, since I’ve found no evidence of a published order that it could have broken. That is the point of disclosing the order in advance. Without it, nobody outside the company can tell what the sequence was meant to be. And the employees are left to guess whether there was any plan at all.

A voluntary package may also change the legal picture, depending on the country. In Canada, statutory termination rules do not apply to voluntary packages, so the terms are whatever employer and employee agree. In the UK, voluntary redundancy is still a redundancy – volunteers count towards the 20-person threshold for collective consultation. In France, a collective voluntary departure scheme needs a collective agreement validated by the labour administration, and its payments cannot be lower than what the law gives on dismissal. In Germany, signing a mutual termination agreement counts as ending the job yourself, even when the employer proposed it, and can cost up to 12 weeks of unemployment benefit. In Poland, a mutual agreement initiated by the employer for reasons unrelated to the employee can fall under the group dismissal act, including its statutory severance of one to three months’ pay. These rules differ so much that a company operating in several countries cannot rely on local law to give every employee the same protection. That is why its own minimum terms matter here.

Who takes the offer is the main risk. Companies hope the volunteers will be the people they can spare. At the same time, they fear the opposite: that the best people will leave, because they can find work easily. The evidence turns out to be mixed. Nita Chhinzer, who studies voluntary separation programs at the University of Guelph, says that the fear is justified. Companies expect poor performers to go, but it’s the star performers who are often the ones to leave. She was commenting on Rogers Communications, which offered buyouts in Apr’26 to roughly 10,000 employees (nearly half of its workforce). Rogers limited the offer to eligible groups, which she says reduced uncontrolled departures.

A study of a university program adds another angle. A one-time early retirement incentive was offered in 2009 by Cornell University to staff aged 55 and over. Around one third of the eligible staff accepted. The authors of the study found no evidence that the most productive staff took it. What they did find was that it was the employees paid less than expected for their job who were more likely to accept. Being unable to measure productivity directly, the authors used pay relative to similar jobs as a proxy. A further difference is that the offer went to long-serving staff near retirement – a group different from the mobile top performers that Chhinzer describes.

Chhinzer adds that people are less likely to leave when jobs are scarce. A company can then end up doing layoffs anyway. That brings us to the last rung, but before we go there, RETAIN proposes these minimum terms for Rung 5:

• The take-up is reported by level and team so that anyone can check who left.
• Voluntary means voluntary: no quotas, no hints, and no penalty for saying no.
• Terms at least as good as the company’s severance for a layoff in the same country, and never below the local legal minimum. The same formula applies to everyone who is eligible, in writing, with a plain explanation of what accepting means for their rights and benefits where they live.
• Eligibility rules published up front, with a decision window long enough to use. The company says whether it can turn an application down, and why.
• The roles that open up follow Rung 1: they are offered inside the company first.

Rung 6: Layoffs and dignified exits

Layoffs sit on the last rung. A company gets there only after having climbed the earlier rungs and it should be able to demonstrate that. When a layoff can’t be avoided, how it is done is not a trivial thing. It shapes what the people who leave can do next. It also shapes how the people who stay behave.

There is evidence on the second point. Charlie Trevor and Anthony Nyberg studied downsizing at organizations across industries. They found that downsizing predicted higher voluntary turnover afterwards and that HR practices that convey procedural fairness weakened that link. In plain terms: a badly handled layoff can push the people who stayed out the door too.

Airbnb shows what a careful exit can look like. In May’20 it laid off about 1,900 of its 7,500 employees, a quarter of the company, after a forecast that its 2020 revenue would be less than half of 2019. CEO Brian Chesky’s letter explained why, how people were chosen, and what would happen next. In the US, the severance was 14 weeks of base pay plus one week for each year of service, and the company covered 12 months of health insurance. It waived the usual one-year wait before stock vests, so that even people hired in the past year would leave as shareholders. Everyone leaving was also eligible for the May vesting date. People could keep their laptops. Airbnb launched a public directory of laid-off staff and moved part of its recruiting team into a placement team. In the US and Canada, people were notified in one-on-one conversations with a senior leader within hours. The last working day was set in a way that left people enough time to say goodbye.

Now compare Better.com in Dec’21. Its CEO told more than 900 employees, about 9% of the company, that they were laid off, on a Zoom webinar that CNN described as short and emotionless. Their employment ended immediately, and an email from HR with benefits and severance was to follow. In a statement to CNN, the company’s CFO called layoffs gut-wrenching.

These are two cases described by journalists and commentators. I have not seen a study that compares how the people fared after each. Nor are Airbnb’s terms a standard. Google’s US employees laid off in Jan’23, covered in the last article, got at least 60 days of notice and 16 weeks of pay plus two weeks for each additional year of service. Terms differ from company to company. The point is that they are clear on the day and not improvised.

RETAIN proposes these minimum terms for this rung:

• Contractors and agency staff get the minimum terms from Rung 2
• The sequence is published before the crisis. On the day, the company shows which rungs it used and why it moved to the next.
• The company explains how people were chosen.
• Notice, severance and health coverage follow a schedule that was published in advance. Equity that is about to vest is not cut off.
• Everyone hears personally, before any group announcement. Nobody learns from a switched-off badge or a one-way group call.
• People leave with what they need for the next step: their laptop if they need it, their mobile phone number, and placement help.

The ladder in full

We’ve come to the end of the ladder, so it’s time for a quick summary:

1. Freeze hiring and offer open roles inside the company first.
2. Reduce contractors and vendors, respecting the minimum terms.
3. Furlough or cut hours.
4. Cut pay in tiers, with leaders first and most.
5. Offer voluntary buyouts or early retirement.
6. Lay off, last, with minimum terms respected.

Together with the foundation, that’s all there is to E. The thing to keep in mind is that a ladder does not rule out layoffs. Pay cuts can fail to save enough jobs. Buyouts can fail to draw enough takers. A company can follow every rung and still reach the last one. The promise that’s key to RETAIN is: the order is published before the crisis so that anyone can check whether it was followed.

Next in this series: T: the cost of silence.

Sources

• Workers’ willingness to accept pay cuts: Microeconomic Insights, November 11, 2025, summarizing Davis and Krolikowski, American Economic Review, February 2025
• Why employers prefer layoffs: Bewley, ECB Working Paper 776, July 2007
• Explaining a pay cut: Psychology Today, July 1996
• Gravity Payments (2020): GeekWire, March 31, 2020; Yahoo Finance, 2020
• The dispute over “voluntary”: The Seattle Times, December 25, 2022, as summarized on Wikipedia
• Nucor: Foundry Planet, February 3, 2011; Voice of America, October 22, 2001
• Nucor’s current no-layoff practice: Nucor Building Systems, careers page
• Executive pay cuts in 2020: The Conference Board report, via the Harvard Law School Forum on Corporate Governance, May 17, 2020; JUST Capital, May 2020; Marketplace, July 10, 2020
• Intel’s tiered pay cuts and layoffs: ABC15, February 2, 2023; Al Jazeera, December 22, 2023; AP, via KTVU, August 1, 2024
• Microsoft’s Voluntary Exit Offer (Oct’26) and the Apr’26 retirement program: Fortune, October 30, 2026; TechCrunch, October 26, 2026
• Microsoft’s Jul’26 layoffs: Reuters, via Ynetnews, July 6, 2026
• Voluntary exits and the law: UK, Acas, collective consultation for redundancy; France, Conseil d’État, March 21, 2023 (decision 459626), quoting articles L. 1237-19 to L. 1237-19-4 of the Code du travail; Germany, § 159 SGB III and SG Landshut, July 18, 2022; Poland, the act of March 13, 2003, consolidated text of September 2026 (Articles 1, 8 and 10)
• Voluntary packages: HR Director Canada, April 30, 2026
• Rogers’ Apr’26 buyout offer: BNN Bloomberg, April 27, 2026
• Cornell’s early retirement incentive: NBER Working Paper 17538, October 2011
• Downsizing and voluntary turnover: Trevor and Nyberg, Academy of Management Journal, 2008 (abstract)
• Airbnb’s May’20 layoff: Commercial Observer, May 6, 2020; Josh Bernoff, May 6, 2020, with excerpts from Chesky’s letter
• Better.com’s Dec’21 layoff: CNN, via ABC7, December 6, 2021
• Google’s Jan’23 notice and severance: Pichai, January 20, 2023 (Google blog)