This is very true, and I would say definitely the biggest weakness of my point. In a theoretical world in which you can drop the bottom 10% of performers, I think that's clearly the right thing to do, but obviously practice is not the same as theory.
I will say the one other thing about 10% paycuts for these companies that would drive me out is that the companies are still making lots of money. If you're in a business where belt-tightening is plausibly necessary (something that has boom/bust cycles, for example, and hits a particular bad bust one), maybe I can accept a pay cut. If you're cutting my pay but still maintaining a shareholder dividend, I am gone.
After 1-2 years in any big tech company your equity surpasses your salary.
Well, I can understand now why everybody gets out immediatly if stocks drop a little bit. Average daily movement of the stock is 4 dollars, and 8 is not unheard of ...
That’s been the one conclusion of every study on Lincoln. You can’t mimic a small part and expect similar performance.
It's different when layoffs are happening across the industry.
When everyone is doing layoffs, seeing your company do layoffs isn't as surprising. It's expected as everyone adjusts to changing market conditions.
But when everyone is doing layoffs and your company cuts your compensation, it's a sign that you might be underpaid relative to what you could get at other companies. So people start looking around for an opportunity just to get back to their old salary.
The other problem with paycuts is that you can only really do it once. In a slowing economy like ours, it's not surprising to have multiple rounds of layoffs as companies cut departments and react to dropping sales.
But having multiple rounds of paycuts would guarantee that your best employees all leave for other companies where they can get back to their old compensation levels.
As a business, it depends on the type of business, but pay cuts tend to be a more effective way to stem bleeding. For example, a consulting firm (so horizontally scalable) with 90% of the employees can only do 90% as much work. Revenues dip. That leads to a cycle where further layoffs are necessary. A pay cut, on the other hand, doesn't have the same dip in output as a layoff.
Now, all that said, many businesses (including some that did layoffs) are vastly overstaffed, to where productivity would be higher with fewer people. But even that can be managed more gracefully.
In abstract, if there were a way to rank employees by ROI and contribution perfectly fairly, I might not worry about layoffs personally. However:
1) In my career, I've never seen layoffs which were at all good at selecting the bottom 10%. Who gets dropped is pretty random.
2) I care about other people I work with. A 10% layoff means a few of my friends were hurt.
When I had a 10% paycut because the business needed it, it felt a little unfair, but I didn't leave. That same business raised my salary back up a year or two later. I'm still there, actually, and many people spend entire careers here.
I spend most of my hours working, and above some point, I care about having a humane employer, meaningful work, and a decent work environment much more than I do about salary.
Job stability also allows me to focus on my work over signalling. That works well if I value and enjoy my work (which I do).