Published on December 22, 2010

In rare cases, when an employee relocates, market conditions and cost-of-living in the new location warrant a pay cut. This may be necessary to keep the transferred employees' salary in line with existing employees at the location, to avoid legal and ethical issues, and to maintain company morale.

If the amount of pay cut would be very small, it's better to keep employees at the current rate of pay. You may also consider freezing the individual's salary until market conditions and/or performance show a raise is warranted.

But, if a pay cut is necessary, there are ways to soften the blow with a generous relocation assistance package.

When breaking the news of a pay cut to transferred employees when you negotiate relocation assistance packages, follow these steps to ensure employee satisfaction after the relocation.

  • Explain your reasons carefully, sharing market rates, CPI, and any other figures that factored into your decision.
  • Work out a time frame to renegotiate salary.
  • Point out the intangible benefits to the relocation, including lower cost-of-living, larger home, or cultural benefits, such as being close to museums, the arts or good schools
  • Point out work-related benefits to the relocation, such as increased opportunities and room for advancement
  • Offer relocation incentives or retention bonuses as part of relocation assistance packages
  • Offer tax gross up in your relocation assistance packages
  • Offer loss-of-sale benefits on a home as part of relocation assistance packages

Creative relocation assistance packages can make many employees feel better about a move, even if the move requires a pay cut or pay freeze.