Should You Take a Pay Cut?

How to evaluate if taking a salary cut is right for you

Changing careers, geographic locations, or industries? Trying to get back to work after extended time out of the job market? Or just hoping to hang onto the position you have in a competitive marketplace?

If you answered “yes” to any of the questions above, then you may have also considered whether or not you should be willing to take a pay cut. While it may be tempting to do so in order to stay in the game, some career experts recommend that women in particular think long and hard before deciding to accept a lower salary.

Here are some issues to consider before you agree to less money:

Women face a double-edged sword. Because women are likely to earn less than men to begin with, agreeing to a pay cut on top of this discrepancy can result in a double whammy of lost income. “Women currently earn, on average, just 77 cents for every dollar a man earns,” says Liz O’Donnell, author of Mogul, Mom & Maid: The Balancing Act of the Modern Woman. “When you consider women are breadwinners in 40 percent of all households, you can see that their wages matter—not just to the individual women, but to the families they help support.”

O’Donnell suggests that rather than accept a pay cut, women need to embrace the idea of “value-based pay” by negotiating their salaries based on the unique value they bring to an organization accumulated through their total career experiences.

Your work experiences are valuable. You may feel that you need to accept less money when you change industries, or even companies—particularly if you aren’t bringing in the exact skill set that your new job requires. However, think about whether there’s a way to prove the value of your past experiences and how they can benefit your new employer before agreeing to a pay cut.

“Employers often try to knock down starting salaries because someone hasn’t been with the company, or in the specific industry, but that approach implies experiences from other jobs and industries are useless,” says O’Donnell. “That’s not the case. In fact, there can be incredible value to bring an outside perspective into a company of like-minded thinkers.”

Flex benefits won’t pay your bills. There are many reasons to push for flex benefits as part of your overall compensation package—one might be to help make it possible to keep a job you already have, if a raise is not possible or your employer is making across-the-board pay cuts. But in most cases, you should be careful not to compromise your salary in exchange for greater flexibility.

“Women should be careful about accepting flex benefits in lieu of salary,” says O’Donnell. “An organization that truly values work-life balance will have a culture of flexibility, not offer flex options as part of the compensation package.”

It’s tough to make up the difference. Lisa Thompson, director of professional services at Pearson Partners International, notes that it can be very difficult to make up for a pay cut down the road. “Most employers base compensation (and raises) on your last job, and not what you have made historically in your career,” says Thompson. “If faced with having to cut pay or cut hours in a situation, it is better to cut hours and keep the pay scale at the current level.”

Reasons to Cut Corners

Despite these reasons to avoid lowering your salary, there can be some compelling reasons why you might consider accepting less than you made previously. According to Katie Donovan, founder of Equal Pay Negotiations, it can be appropriate to take a pay cut when moving from one region that is on the high-end of pay, such as New York, to a region with lower cost of living and thus pay, such as Tennessee. However, be sure that your individual circumstances warrant such a cut rather than just assuming you must take a lower salary. “A pay cut is more common when changing employers and moving on your own,” says Donovan. “This is not common when you are moving with the same employer even if the cost of living is less at the new location.”

Another reason to possibly consider a pay cut is if you are changing industries or want to learn a new side of the business. Sharon Abramson had worked in newspapers for over a decade, but started to notice an unfortunate trend—as circulation started shrinking, newspapers around the country were forced to trim staff. As Abramson watched colleagues being laid off or forced to take buyouts, she decided the time was right to pursue a career in a new field: public relations.

Abramson had been interested in PR for many years and felt her journalism skills would be a good fit for it. However, most jobs that she applied for in her new field of interest went to people who had years of public relations experience under their belts. When she finally found a company who valued her writing ability, interviewing skills, and media contacts, she decided it was worth it to take a pay cut for the opportunity to get started as an account executive in media relations.

So far, her financial gamble is paying off in more ways than one. “Since I started working here in August, I have already received a bump in pay from bringing in a new client and I hope to bring in many more over the years,” said Abramson. “My job also offers flexible working hours and the possibility of working from home occasionally. The firm is also growing rapidly, and I believe my long-term potential for earnings doing this is much greater than it was working at a newspaper.”

Everyone who takes a pay cut to join a new industry won’t be as fortunate as Abramson. But if you determine that your future earnings potential and overall job satisfaction may be higher by shifting gears, then a temporary drop in salary may be worth it in the long run. How low should you be willing to go? “There is no one magical number or percentage,” says Donovan. “Be informed about the going rates for your region and your industries to know if you are making an appropriate amount.”

If You Take a Cut

Worried about how to explain a previous pay cut to a potential employer? Donovan says not to be. “I advise all clients to keep salary history blank all the time,” says Donovan. “When asked about it simply reply that it is confidential and you honor your agreements with employers. No company can ding you for being honorable, especially when they will probably have a salary confidentiality agreement as well.”

Thompson recommends that if the issue arises in interview situations, you should explain why you were willing to take a “one-time” cut in compensation. You should also provide current competitive compensation information to back up why you are asking to be paid at a level that is fair for the position and market.

If you do decide to accept something lower to broaden your career horizons or for other reasons, don’t get down on yourself about it. Instead, look to the future. “Make sure it is a calculated risk on your part and that there will be opportunity in the short term (12-24 months) to recover,” advises Renee Baker Arrington, senior vice president of Pearson Partners International. “Make sure there is a promotional path ahead or an incentive program that will allow you to recover the lost compensation.”

“At the end of the day most of us need to work to make money so, if accepting a pay cut is necessary to keep a roof over your head then by all means do it,” says Donovan. “Then start your job search for a better situation the very next day.”