A company is making a small profit. It is located in a community experiencing a recession with substantial unemployment but no inflation. There are many workers anxious to work at the company.
The company decides to decrease wages and salaries 7% this year.
Sixty-two per cent judged the pay cut unfair.
In an another version of the question, the community was said to have ‘substantial unemployment and inflation of 12% . . . The company decided to increase salaries only 5% this year.’ Now 78 per cent said this was acceptable. But of course the workers’ lot is almost identical in both versions. Getting a 5 per cent ‘pay rise’ when prices rise 12 per cent translates into nearly a 7 per cent cut in buying power.
One conclusion is that inflation is the Scroogish employer’s best friend. A similar principle applies to bonuses. It was judged acceptable for a troubled company to skip an annual 10 per cent bonus it had been in the habit of paying, but not to cut pay by 10 per cent for a year. (Wall Street employers, at the mercy of a volatile market, have long made use of this.)
Excerpt from: Priceless: The Myth of Fair Value (and How to Take Advantage of It) by William Poundstone