How To Handle Employee Demotions and Pay Cuts in Malaysia

Everyone wants to be recognized, rewarded, and subsequently - promoted. Nevertheless, there are times when some workers are forced to bear the opposite of good news, which may include decisions of demotions, pay cuts, or even dismissals. 

This situation can be challenging for seasoned employers, leaders, or HR managers. That's why we've outlined a quick guideline on managing employee demotions and pay cuts in the best way possible for both the company and the employee. ‍

 

Employee demotions and pay cuts: What, why, and how?

When an individual is demoted, their rank or position in the company has been lowered. On the other hand, a pay cut refers to a reduction in a worker's salary. This often happens to a worker being demoted or even to employees in the same position or rank in the organization. 

Employee demotions can happen due to a few reasons, and some of the common ones include: 

• Poor work performance 
• Breach of organization policy 
• Improper conduct or work ethic
• Lack of discipline 
• Restructuring the company 

Under Section 14 of the Employment Act 1955, employers have the authority to "demote an employee" should there be "misconduct inconsistent with the fulfilment of the express or implied conditions of his service, after due inquiry". 

However, do note that the Employment Act 1955 applies only to workers in West Malaysia who are earning a monthly salary of RM 2,000 and below, as well as manual labour employees. 

 

How can employers handle employee demotions?

Before making the call to demote an employee, it's great to ask yourself the following questions first: 

• How will the demotion impact the team and the employee? 
• Will the employee perform better in the transitioned position? 
• Were the other options like "performance improvement training" considered? 

Once you've got the answers to the above and if the decision to have the employee demoted remains, consider the following tips to ensure that the tough-call meeting is conducted positively and constructively.

 

#1 Maintain a respectful stance 

During your meeting with the soon-to-be demoted individual, try to be courteous. Remember that this tough call is made for the organization's good, but remember that you'd still want to retain this individual in their new, demoted position. 

So explain the reasons behind the decision to the individual as honestly as possible. For example, if it involves their performance, communicate to them why the company wishes to retain the worker instead of terminating the contract.

 

#2 Communicate in an open‍ manner

Similar to being respectful, leaders and managers should also be open when facilitating the discussion. A demotion is definitely not easy news to accept by any worker, so be ready to answer potentially difficult questions with constructive feedback. ‍

A few of these questions include: 

• What did I do wrong to be demoted? 
• What can I do to reverse this decision?
• Will there be repercussions if I decline the new position? 

 

#3 Outline clear expectations for the employee's new role

Take the time to explain the transition to the new position and its effective date. Other relevant information may include the following: 

• The effective date of the individual's last day in the current position
• The effective date of the individual's first day in the new, demoted position 
• Effect on the individual's remuneration - such as pay, bonuses, and benefits

 

#4 Be transparent with your team

The news of an employee's demotion can be challenging for other employees, mainly if the employee often works in a team. Honesty and transparency are vital here to make sure that team communications are clear to prevent any misunderstandings or office gossip from arising. 

When communicating this news, your message should be worded so that the demoted employee is transitioning into a new role. Be transparent yet tactful when communicating the reasons behind the decision, and outline how the transition will affect other team roles and duties. 

If you still need to figure out how to communicate this news, base your message on the facts instead. Remember, personal feelings and emotions shouldn't be a part of the meeting here.

Generally, you want your employees to understand their next steps concisely. Demotions, when managed constructively, can provide employers and companies with the opportunity to retain a valuable worker with relevant experiences and who is better off in another role. 

At the end of the day, employers want to make the best out of a somewhat negative discussion. Handling an employee demotion or pay cut positively will provide mutually desirable results for both the company and the worker - or at the very least, alleviate the problematic situation. 

 

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