Of late, there are many instances of delayed salary payments to employees. Delays as long as 3 or 6 months are occurring especially in the airline industry. Even the public sector Air India has got into this notorious list.
There is no doubt that some industries are very adversely affected by recession and cash flow problems are becoming increasingly intractable. Demand for product / service is decreasing; cash sales are even less and credit sales become unavoidable. Collections from debtors are taking more time and bad debts are rising. Consequently, payments to suppliers and employees are getting postponed. The vicious cycle is turning more vicious over time. This in short is the justification provided for delayed salary payments.
Unmistakably there is a need for prioritisation among various payments. This may vary from situation to situation. In most cases, however, it makes more economic sense to give priority to salary payments. Long term health of any business depends crucially on the satisfaction and loyalty of its employees. Delaying payments to employees is a short term pragmatism that is costly in the long run. Enlightened managements need to create an escrow account for salary payments that will act as a systemic regulator against short-termism.