Picture: 123RF/ALLAN SWART
Picture: 123RF/ALLAN SWART

As the government-ordered lockdown to suppress the rapidly spreading Covid-19 pandemic continues, more companies are resorting to cutting employee pay as an alternative to large-scale retrenchments.

It will be agonising for workers in a country with dangerously high levels of household debt relative to disposable income — which stood at about 70%, according to the Reserve Bank data — and in which pay increases were at record lows even before the crisis.

Faced with the alternative of being laid off as companies from mining to the restaurant industry contend with falling orders, shrinking demand, dropping advertising revenue and closed outlets, there may be little choice.

On Monday, clothing and grocery retailer Woolworths said its senior management will bear the brunt of the financial pain brought by closures of its clothing stores, which contribute more than half to its annual sales of R37.4bn, so it can continue to pay locked-down workers and add incentives to salaries of those deemed essential — men and women at its grocery stores.

Board members, group CEO Roy Bagattini and the group’s senior executive team will forgo up to 30% of their fees and salaries over the next three months, the group said in a trading update.

The company reported a nearly one-third jump in comparable food sales in the four weeks to the end of March 2020, while its higher-margin clothing business lost sales by a similar margin. Things could even get worse for the clothing section, as these data only account for three days of the national lockdown that started on March 27 2020.

It is easy for bigger companies such as Woolworths, a R29bn retail giant, to keep paying salaries, thanks to their large cash reserves, favourable ratings with lenders and easier access to capital markets. Furthermore, bigger companies could also force shareholders to share the pain by halting or delaying  dividend payouts,  as is the case with several companies including the Texton Property and Vukile Property funds.

Other companies such as Hyprop, Attacq and Nepi Rockcastle, all of which have suffered declines in rental income as the bulk of the retail and office clients work from home, have also warned that dividends could be chopped, suspended or delayed to preserve cash.  

The same cannot be said for small businesses — the biggest employers in an economy with nearly three in 10 people unemployed, if one uses the narrow definition for counting those who are looking for a job.

It is true that small businesses can cushion the economic toll of the stay-at-home order with the co-ordinated relief packages from the department of small business development, SA Revenue Service, property landlords and major banks, as well as contributions from billionaires such as Patrice Motsepe and Johann Rupert.

Still, the measures, which include debt repayment holidays, interest-free loans and 20% tax deferrals, might not be enough for some of them to ease their fixed costs, and laying off staff might seem the best option.

It might not make sense to some small business owners to take out a no-interest loan or defer a portion of their tax payments if the easiest solution is to let employees go. But as Woolworths has shown us, there are other ways of containing the economic fallout of Covid-19.

For small businesses, whose wage bill at the top might not make any difference or for some reason does not qualify for government support schemes, spreading the pain to the rest of the employees might be a solution for the employees and the company itself.   

A small business such as a start-up restaurant or bar, that might not have all the required documents to qualify for the grant,  could cut salaries across the board — with the deepest cuts at the top — to stave off job losses.

That will keep as many people as possible employed, but crucially, it would help companies hold on to talent and save money on retraining costs when the lockdown is lifted.

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