After Layoffs, Is Higher Pay for Remaining Staff the Right Retention Tool?

Recently, in the aftermath of significant layoffs to the company’s 1,300-employee workforce, ClickUp CEO Zeb Evans tried to lessen the blow with a bold announcement: He said the productivity software startup will offer its remaining employees the chance to earn up to $1 million a year in base salary.

“This wasn’t about cutting costs,” Evans wrote on X about the layoffs, which affected 22% of ClickUp’s staff. “Most savings from this change will flow directly back into the people who stay. We’ll be introducing million-dollar salary bands. If you create outsized impact using AI, you’ll be paid outside of traditional bands.”

The announcement, particularly the wording of “million-dollar salary bands,” garnered headlines and “naturally raises lots of eyebrows,” said Jan Hendrik von Ahlen, career expert and co-founder and managing director at JobLeads, a recruiting site headquartered in Hamburg, Germany.

Traditionally, salary bands refer to defined pay ranges tied to specific jobs or levels within an organization. Although ClickUp described the new compensation structure as “million-dollar salary bands,” the $1 million figure is likely more of an upper-end ceiling than a typical salary range, one that only a handful of — if any — exceptional employees will ever reach, von Ahlen said.

Evans’ announcement, von Ahlen said, is an attempt to “make layoffs sound less chaotic and more inspirational, as if they are an automatic success story and a reward for those who got to stay and those who will be hired.”

While the ClickUp story is one isolated example, and a sensational one at that, the bigger question it brings up is whether layoffs — including those spurred by AI investments — will or should change compensation strategies for employers.

Organizations sometimes offer pay increases for remaining employees as a sign of goodwill and as a way to retain talent, said Ron Seifert, North America total rewards leader at Korn Ferry, in Philadelphia.

“A company would reasonably [give remaining employees a raise],” he said. “That’s because, say I develop you and you’re now on the bus to go forward, I don’t want you to leave. If you have those capabilities and skills that may be very unique in the marketplace, I really want to make sure that I’m taking care of you. When you think people are part of your future, you are willing to invest in them.”

Newsletter: Subscribe to Total Rewards

Helping Survivor Syndrome?

Those salary increases can be a help because “there is substantial research that directly proves that layoff survivors usually become less productive after a round of layoffs, not more,” von Ahlen said.

Remaining employees often experience “survivor syndrome,” he said, experiencing anxiety, decreased trust, heavier workload, and fear that they might be next.

“This is bound to affect people’s performance,” von Ahlen said.

Article: Anxiety Over Layoffs is Plaguing the Workforce. What’s HR’s Role?

The promise of a bigger paycheck may improve the situation, at least temporarily, although it’s not a slam dunk for boosting confidence.

“Telling people, ‘We are laying off your colleagues, but we can pay you more because of it’ is counterproductive and makes the raise feel bittersweet, to say the least,” von Ahlen said.

Plus, especially after layoffs, “higher pay means higher expectations,” he said. “If three people were let go and one is expected to take on their responsibilities, even with AI — which often takes time to be up and running as efficiently as expected — companies are risking having very talented and capable people simply burn out.”

Employers should be prepared for employees feeling deflated and nervous after a round of layoffs and consider a number of different strategies, not just higher pay.

Can Employers Afford Higher Pay?

In general, wage growth has been modest in recent years, with many employers holding back the competitive pay hikes they were giving out years ago when employees were in the driver’s seat and employers were using several levers in the war for talent. Recent economic uncertainty has employers trying to balance budgets and deal with high healthcare costs, among other challenges.

Oftentimes, layoffs do not automatically translate into higher salary budgets for remaining employees, so employers have to make decisions based on what is reasonable for their organization.

“I think companies are always fundamentally assessing what the right reward equation looks like — balancing compensation against rising benefits costs,” Seifert said. “So if some of those other costs are going up, employers are thinking, ‘Can I afford to get you a raise? Or do I have to moderate my salary increases to you? Or am I able to offset that through other cost optimization measures?’ ”

Sending a Message

For employers who have reduced staff, or plan to, it’s beneficial to consider the effects that layoffs will have on remaining employees. Company leaders will want to think about what, if anything, they can do for employees who are still with the organization, Seifert said.

“You have to weigh the balance of not sending the message with doing something and sending a message,” he said.

When it comes to pay increases for remaining staff, he said, even modest pay increases —  especially if significant increases are not feasible because of cost constraints — could be beneficial and can “at least send a message” that they are valued.

“Are you saving some future pain by doing a little bit of something for people? The answer is probably yes,” Seifert said.

Still, von Ahlen cautioned that unless a salary boost or higher salary bands — such as ClickUp’s example — are promised for every remaining employee, “those who don’t get so much will always be wondering, ‘Why not me?’ “So, the risk is less trust and more resentment,” he said.

The bottom line: Employers need to proceed with caution when making post-layoff decisions, including those involving compensation.

“Layoffs are always a very vulnerable time for any company, so every little detail has to be thought through,” von Ahlen said.