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Yash Gupta
Business School Dean

Yash Gupta

Yash Gupta is Professor and Dean of The Johns Hopkins Carey Business School.

Pay Cuts: More Than Just a Gesture

When an executive takes a pay cut, it can have two key results. First, it can serve as a very powerful symbol. It shows that the leader of the organization is willing to make a sacrifice for everyone who works there. The employees have the comfort of seeing that the boss cares about their concerns and appreciates the hardships they're experiencing. Sacrifice is an important part of leadership.

Second, a pay cut has to go beyond being a mere gesture. It must be matched by a purpose beyond symbolism. It must have some kind of direct impact on people who are feeling pain. In the sports field, for example, if executives take a pay cut, then maybe the money could go toward reducing ticket prices or improving the facilities at the local stadium so the public has a more enjoyable experience. In other industries, the savings from executive pay reductions could go toward unemployment compensation and job placement for workers who have been let go, or toward making better, more sustainable products.

A helpful example is what's happening at Johns Hopkins University: The top administrators have agreed to reduce their salaries by 5 percent, with the savings going directly to financial aid for students. This pay cut has the symbolic value of showing that the leaders of the university care about the hardships of our students and their families, and it has the added benefit of making a real impact on student expenses. It helps people who are hurting.

When an executive takes a pay cut and it looks like little more than a gesture, people will ask, "What's the point?" However, going beyond symbolism to make some kind of positive impact with the savings is true leadership.

By Yash Gupta

 |  March 16, 2009; 10:18 AM ET
Category:  Sports Leadership Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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