Back at Work After Coronavirus Lockdown, Many Israelis Face Salary Cuts

Struggling in the post-virus economy, employers are making employees share the burden

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Office buildings in Tel Aviv's Kiryat Atidim, October 9, 2016
Office buildings in Tel Aviv's Kiryat Atidim, October 9, 2016Credit: Ofer Vaknin

Two weeks ago, workers at an Israeli service company's headquarters were given a choice – agree to work for a base salary and performance bonuses or don’t come back to work at all. One of them had been working in marketing before the coronavirus outbreak, but not in actual sales. Now she was told employees who don’t bring in new customers will have to make do with just their base salary.

Her boss, she says, "told us that he had no choice. Revenues had been hurt and he can’t pay people as he did before, He presented it as if he was offering us to be his partners and share in the success of our work, but in practice, it’s just a pay cut – a drop from 12,000 shekels [$3,400] a month to 5,000, maybe with an added bonus.”

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All over the world, the coronavirus pandemic has ridden roughshod over the labor market, even more than the 2008 global financial crisis did. Employment, or the lack thereof, has become the central issue in coping with the crisis. Having learned the bitter lesson of 2008, governments have been doing all they can to preserve jobs, especially in Europe. Germany and Britain have made loans and grants to companies so they could continue to pay idle employees. In the United States, many companies have cut pay – more for senior executives, less for lower-level staff – in order to avoid layoffs.

In Israel, the focus has been on granting unpaid leave rather than firing workers outright, keeping the window open for them to return to their old jobs. But as the lockdown eases, many of those being innovated back are finding that work conditions have been changed for the worse. Salaries have been cut and hours reduced.

A survey by the Central Bureau of Statistics conducted in early May food that 9% of all businesses have acted to cut employee pay. Of those, 63% had slashed salaries by up to 25% and 274% by 26% to 50%. In industry, not counting high-tech, the phenomenon was somewhat more moderate – only 7.2% of business said they cut pay and of those that did 84% cut pay by no more than 25%.

In Israel, as in other countries, the preoccupation with preventing job losses – whether by making unpaid leave an option or supporting employers who preserve jobs – is expected to be replaced quickly by questions about pay, hours and other conditions. Policy makers are worried about the drag of high unemployment on economic recovery, but lower pay threatened to weigh further on growth.

In the post-pandemic economy, when lockdown restrictions have mostly been lifted and government aid ended, long-term changes in the job market were not necessarily connected to health issues or a second wave of the coronavirus in the offing.

Zviran Compensation & Benefits Solutions, which handles pay and pension issues for 180 Israeli companies in high-tech, pharmaceuticals and other industry, said a survey it conducted found that 40% of businesses planned to cut costs, mainly small and medium-sized businesses serving the local market.

Zviran said the longer that the coronavirus crisis continues, the more companies will be forced to reduce pay. Of the companies making cost cuts, more than a quarter were doing so by reducing salaries, in many cases by reducing work hours.

“Tech companies – mainly but not exclusively – are more affected by the world economy than by the Israeli economy,” said Sarig Gafny, a partner in Zviran. “Companies that took steps did so proactively because they feared the impact [of a downturn]. I think that in the high-tech and export sector we will continue to see waves of layoffs and salary cuts. Right now, companies are acting on the basis of forecasts, but if or when they begin feeling the impact of the crisis on the world economy, we’ll see more downsizing and cost-cutting.”

But changes in pay and hours aren’t occurring just in high-tech. Financial service companies, ad agencies and apparel retailers have all announced wage and work hour reductions.

Manufacturers have said they can’t be confident about returning to full-time production anytime soon. A survey of 170 industrial companies by the Manufacturers Association trade group found that two thirds expect to take back about half their regular workforce that’s been on unpaid leave, over the next several weeks to full- or part-time employment.

The same trend is happening all over the world. A survey of 717 white-collar workers taken by Jeremiah Owyang, an analyst at the market research firm Forrester, revealed that 44% had agreed to salary cuts of up to 10% in exchange for permission to work from home. Another 24.3% said they preferred to work in the office without a salary cut and 31.7% sad they were looking for work elsewhere.

In another survey, Willis Towers Watson, a global advisory firm, found that 21% of the companies it asked reported that in the first half of April they had either cancelled pay raises or cut pay, up from 12% the month before. In wholesale and retail, the share taking such steps jumped to nearly half.

Dafna Shmuelevich, a partner in the Rubin-Shmuelevich Law Office of Herzliya Pituach, said companies cannot change employment conditions unilaterally.

“An employee who doesn’t agree to a salary cut and a reduction in work hours can tell their employers. Nevertheless, an employee has to take into account that because of the coronavirus’ it shouldn’t be assumed that they can continue to be employed under the previous conditions, so that opposing any change could lead to being fired,” she said.

She recommended negotiating with an employer to mitigate a reduction, for instance, the employer’s agreeing to retain pension contributions at their previous level.

“In any case, an employee can resign due to a worsening of conditions and qualify for severance compensation,” Shmuelevich said.

In workplaces where there are unions, the workers’ committee takes charge of negotiations and can reach an agreement with an individual worker’s consent. However, an employee can choose to leave due to worsening conditions and qualify for severance pay.

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