Is taking a pay cut ever a good idea?
Don’t be mad for what I’m about to say, because it’s the truth: it depends. But don’t worry; I’m going to share what I believe are the most important factors to consider as you do your internal calculation. Let’s get started:
What’s leading you to ask this question in the first place? Maybe you’ve been offered your dream job, and it means taking a 20% salary cut. Or, you’re unhappy at your current job and you have an offer on the table. There’s a lot of reasons for considering a pay cut. Just be clear on what yours is.
Does it financially make sense? In other words, can you afford to? If you are in a position where a salary decrease does not effect your ability to pay for essential costs like rent, food, and healthcare, then it’s worth considering. When looking at this, do not forget to check if the cost of your benefits will change. For example, if you are taking a pay cut and the out-of-pocket benefit costs increase, it’s essentially a double-whammy.
Do you know what the earning and growth potential looks like? If you’re moving to a new industry or role, do your research on the current and anticipated demand. You can typically find that information with a simple google search, on LinkedIn, or talking to recruiters. From a company standpoint, ask the recruiter about the performance and salary review processes. This will give you a sense of when they review salaries and how they determine promotions and increases. It’s super important to know what their expectations are, how they assess performance, and how that influences pay so that you can see a path to growth.
People ask if I would ever take a pay cut. And guess what? I have once. Was it worth it? Absolutely. What led me to making the move is a story for another post, but I’ll tell you the factors that gave me confidence in my decision:
It was do-able, financially. This was largely because we recently moved to a lower cost-of-living state.
I wanted to transition to the tech industry and the new job gave me that opportunity.
The company I moved to had a good annual bonus program, a bi-annual salary review process, and a pay-for-performance culture. If I performed well, exceeded expectations, and added value, I felt confident I would be recognized monetarily.
I really, really liked the person I would be working for and the team I would work with. More than that, I knew I could learn a lot from all of them.
It’s a big decision. If talking it through with someone who has both lived it personally and seen others consider it, schedule some time. At minimum, I hope this post gives you the information you need to make the best decision for you.
