EXCLUSIVE: For the second time in three years, DNEG, the largest employer in the vfx industry, claims that it cannot pay employees their full salaries. It is asking its employees to take paycuts of up to 50% for the next seven months, while introducing a loan program that would compensate for some of the lost salary and make DNEG employees indebted to the studio for years to come.
The vfx giant, which has over 10,000 global employees and whose credits include Oppenheimer and the Dune franchise, blames its inability to pay workers their full salaries on the WGA and SAG-AFTRA strikes. According to internal documents that Cartoon Brew reviewed, DNEG has told workers that “even when the strikes end we would expect there to be a six- to eight-month delay while the industry returns to normal.”
The initial salary reduction proposal that DNEG offered its workers, which was first revealed last Friday in a Deadline report, caused outrage and frustration among employees at the company, according to multiple DNEG workers that Cartoon Brew spoke with, all of whom have requested anonymity.
In response, the company revised its proposal over the weekend, and adding a third option that doesn’t reduce the salary but rather the number of hours worked. The new proposal also includes an additional paid leave structure that compensates for some of the lost wages.
A DNEG spokesperson told Cartoon Brew that it added the reduced hours option and the additional paid leave “after close consultation with our teams on how we can best make the proposal work.” The company further added, “Our proposal is designed to allow us to keep more employees on payroll than we could otherwise support … We’re proposing solutions that are designed to sustain jobs and keep as much money as possible in our employees’ pockets during this difficult period, while positioning the company to meet the current economic challenges, and be ready to get straight back to work on new projects for our clients once this disruption passes.”
Here are the three options as of this afternoon:
1 – Take a straight salary reduction of 20% to 25% for a period of seven months. The reduction is based on a sliding scale, with those earning more money taking the higher percentage cut. The company will offer 30 days of paid leave to compensate for the salary reduction (6 days in 2023, 12 days in 2024, and 12 days in 2025).
2 – Take a temporary salary reduction of 50%, but the company will loan the worker an additional amount (DNEG calls it a “salary top-up), that would put the worker at 90% of their current salary. The loaned amount will be repaid over a period of three years, which would then equal the 25% cut over seven months in option 1. The company will offer 30 days of paid leave to compensate for the salary reduction (6 days in 2023, 12 days in 2024, and 12 days in 2025).
3 – Hours reduced to a 3-day working week for seven months, with no reduction to hourly rate.
Cartoon Brew has reviewed an internal calculator provided to employees, and in instances #1 and #2, DNEG will have reduced a worker’s salary by around 10% for calendar year 2023. Those who take the heftier reduction in option 1 won’t be saddled with debt for the following three years, which is what would happen in the second option.
Who does this affect? DNEG’s new salary proposal broadly affects all DNEG vfx employees in Canada, U.K, and U.S.who earn above a certain threshold — $60,000 in Canada (Usd$44,324). It also impacts workers at DNEG-owned ReDefine. (Employees at ReDefine’s studios in European cities like Barcelona and Sofia, Bulgaria, won’t have their salaries reduced due to EU labor law protections.)
Does it affect DNEG Animation? The company’s animation division, which is responsible for the recent feature Nimona as well as the Emmy-nominated Entergalactic, is not expected to be affected by the paycuts. DNEG told employees at a recent townhall that budgets for its animation shows are more transparent with clients and there is no need to reduce salaries.
How long do employees have to decide? DNEG has asked all employees to make a decision on whether they will accept the salary reduction by Friday, September 29, with the reductions going into effect on October 1st. The company has threatened a “deeper headcount reduction” to employees who don’t take the salary reductions, meaning that they will likely be laid off.
Why is the move so unpopular? The salary reduction impacts thousands of workers who have financial commitments such as mortgage renewals and child support payments that are based on their annual compensation. Additionally, many employees had balked at doing the same amount of work for less pay, which the newly-introduced reduced workweek option addresses. DNEG had initially resisted cutting back on work days and said in an information letter to employees that four days a week would not save the company enough money and “would not be sustainable for the crew from a financial and productivity standpoint.”
What if someone doesn’t accept the paycut? The company has threatened to lay off any employee who doesn’t accept the cut, telling them that “if costs cannot be brought down by these measures then we may unfortunately have to propose further options, including deeper headcount reduction.”
So there won’t be any layoffs if everyone accepts the cuts? Not necessarily. According to one worker, during a townhall that took place last week, when a worker asked whether taking the salary reductions would guarantee no more layoffs, DNEG VFX and ReDefine Canada’s managing director Rohan Desai promised that there would be no more layoffs, but he was quickly interrupted by DNEG’s general manager Adriano Rinaldi, who said that the company couldn’t guarantee that there would be no additional layoffs.
It was revealed a couple months ago that the company had laid off approximately 70 employees, but one worker tells Cartoon Brew that there have been layoffs beyond these reported figures and the company has been reducing headcount continually for the last few months.
Why can’t DNEG use profits from previous years to cover the salaries? The company told workers that, “We have been reinvesting earnings into the company from expanding our technical capabilities (like render farms) to opening new studios to win additional work and improving our other physical locations. We will benefit from those investments when the industry normalizes, but for now we need to find significant cost reductions to avoid deeper headcount reductions.”
If employees take a loan on their salary, will they have to pay interest? The loan will be interest-free in the U.K. and Canada, but American employees will be on the hook for interest. According to DNEG, “In the U.S., for tax reasons we are unable to make a loan interest free, and so will need to charge interest on any loans at the federally mandated rate.”
What will happen to pay raises and merit increases? The company broadly halted pay raises earlier this year, and it is now postponing merit increases “until the industry situation normalizes.” It told workers that it will only comment on merit increases “once we have more visibility and information on the resolution of the strikes.”
What happened the last time DNEG did this? When the company cut salaries in 2020, it promised that it would start an equity fund to help employees repay their loans more quickly, however some employees say that nothing came of the equity fund and they’ve had to pay back their full loans. In a SEC statement, the company touted that it had been able to generate savings of $24.5 million from the salary reductions in 2020, in addition to receiving $26.2 million from Canada’s emergency wage subsidy program.
What DNEG is saying: A company spokesperson told Cartoon Brew:
All of us at DNEG are keenly aware of the tremendous challenges facing the feature film and television industries at the moment, and the visual effects and animation studios that support them have been forced to confront those challenges. DNEG is not immune to the impact of the current industry disruption, and we are not alone. These challenges are impacting all filmmaking departments, and our global clients are facing suspension or postponements of projects that represent meaningful revenue to all companies and professionals working in this industry. As a result, we are continuously and proactively reviewing all areas of our business to ensure that we can continue to deliver the highest quality work while protecting as many of our employees’ positions as possible. In order to do that, we’ve asked employees and team members earning above certain salary thresholds, including the most senior executives and creative leaders, to assume short-term pay cuts that will enable us to maintain the maximum number of jobs through this period. This is not a decision we have made lightly, and we understand that it has caused concern and uncertainty among our valued teams and community. We want to address these changes directly and honestly.
What unions are saying: BECTU, a U.K. union that represents creative workers and has been working towards organizing the vfx industry, issued a statement through its chief officer Philippa Childs:
We recognize this is an incredibly challenging time for the U.K.’s film and tv industry and businesses are having to make difficult decisions. However, workers should not disproportionately bear the brunt of these and it’s critical that employers commit to being transparent and maintaining open dialogue with their workforce. We encourage DNEG to engage with us to ensure that their employees’ concerns are heard. Many film and tv workers are already facing huge financial difficulties and this will be a very worrying time for anyone working at DNEG. Being part of a union is one of the best ways to ensure you have a collective voice at work. We encourage VFX workers in the U.K. to join and get active in Bectu to help bring about change.
At top: Dune (2021), for which DNEG was the key vfx vendor.