The Perils of Cutting Salary and Benefits

By Rose O. Sherman, EdD, RN, NEA-BC, FAAN

One unexpected consequence of COVID-19 is the financial toll that it has taken on health systems. AHA estimates the collective loss for just four months exceeds 200 billion dollars. Cutting costs is top of mind for most nurse leaders. How to do it and maintain morale is more complicated. Several large health systems have announced that they will cut some staff benefits such as future negotiated salaries, shift differentials, 401K contributions, PTO days, and tuition reimbursement. The trend, notes the New York Times, is a reversal of traditional management theory, which held that salaries were sacred and it was better to cut positions and dismiss a limited number of workers than to lower pay for everyone during downturns. The term being used is “shared sacrifice.”

Not surprisingly, the reaction from nurses has included threats of unionization and strikes. These reactions are not unexpected given the reality that nurses feel they have put their personal safety on the line and continued to work during the pandemic.

This dilemma reminds me of a discussion I had with a mentor for more than 2 decades ago. In response to a serious nursing shortage, our VA healthcare organization was considering the implementation of the Baylor Plan. Nurses on the Baylor Plan at that time typically worked two twelve-hour tours on the weekend and were paid for 40 hours along with full benefits. I chaired the committee that was charged with doing an evaluation for our network. The benefits of this plan were clear – we would easily cover weekends and also be able to offer a conducive work schedule for nurses who wanted to work during the week. From a recruitment and retention standpoint, it seemed like a win-win. The downside was that the plan was expensive and federal budgets are not predictable. Part of our discussion had to be the unintended consequences that could come if we implemented the plan and then stopped it. My mentor advised me that it would be much more challenging and harder on morale to pull this benefit from staff if we chose to implement it than never offering it at all. In the end, we elected not to proceed with the Baylor Plan. Over the years in my leadership experience, I have found her observation to be very true.

Cutting salaries and/or benefits to reduce costs is tricky even when there are no other good options. People choose organizations, build their financial plans, and structure their lives around their salaries and benefits. Even with COVID-19 and its impact, Leena Lair, the director of HR for Unilever, recently observed that “we are all in the same storm but we are not all in the same boat.” Some nurses have spouses that are now unemployed or co-own businesses that have been closed for months. The financial implications for some are far greater than for others. There could also be a morale issue. After being called heroes for months, nurses may feel devalued if you begin cutting benefits. The salary and benefits the nurses initially receive when hired correlate to the value and rank of the position. If benefits are suddenly taken away, your staff may wonder if their worth is suddenly lower especially if it is not a widespread practice in your community. Feelings of resentment are possible when employees are expected to perform the same amount of work for less compensation. We need not lose sight of that reality as we plan ways to cope with financial losses.

No one wants to hear that their salaries are being cut especially if there are no guarantees that the salary/benefits will return to their original levels even if that is the goal. So if you are in a position where you do have to do it, excellent communication will be essential. HR experts at SHRM recommend that you look for other things you can do for employees to make up for the monetary losses such as more flexible schedules or more overtime availability versus using travel contracts. The challenge in nursing is that some staff will seek other employment options. Replacing them may not be as easy as you think.

Read Rose Sherman’s book – The Nurse Leader Coach: Become the Boss No One Wants to Leave