By Aaron Green
Many companies are reacting to this recession by laying off staff and instituting hiring freezes, as well as delaying raises and promotions under the belief that these actions will reduce costs -- and they do in fact reduce costs, in the short term. However, over the long term these measures often end up costing more than the initial savings. Here's why:
- If you allow morale to drop, your competition can recruit your best people away, while low performers stay on, reducing productivity.
- Decreased staff levels can result in overburdened employees who feel burnt out and frustrated; this situation negatively affects customer relationships.
- Hiring freezes mean lost opportunities to hire available superstars who can improve your organization.
- Replacing downsized employees may take a long time to achieve, and the qualities certain talented employees bring to your company may take years to be fully replaced.
- Employees grow increasingly unhappy; and once they have the opportunity (i.e. when the economy improves), they quit just when you need them the most.
- Your employment brand as a good company to work for is damaged, limiting your ability to hire and retain in the future.
Unfortunately circumstances sometimes necessitate cost cuts and there is just no way around it. As opposed to making company-wide staffing cuts and freezes, following are some suggestions that might fit your situation:
- Make cuts and freezes based solely on employee performance and future opportunities. While this approach is logical and appears obvious, too many organizations take the misguided approach of spreading the pain around the organization, "to be fair" (i.e. 10% layoff for each division, one person cut per manager, company wide hiring freeze, etc.). Think about the company that instituted a company-wide hiring freeze so that all managers felt treated the same: if one division is shrinking and one is growing, it does not make sense to treat these divisions the same; yet this is the approach many companies take.
- Look at overall budget dollars and how they relate to revenues rather than focusing on employee cuts alone.
- Ask employees what they value most in these hard economic times. You may be surprised to learn that some wouldn't mind taking a pay cut in exchange for the opportunity to telecommute or accrue additional time off.
- Take advantage of the difficult job market to hire superstars you might not have been able to afford before.
- Switch some people from employee to contractor status as a temporary measure, retaining your relationships and knowledge base as well as helping to maintain morale.
- Reallocate incentive pay to focus on rewarding your highest performing and highest potential employees.
- Offer employees short-term incentives for cost-saving ideas.
During strong economic times many companies focus on employee morale and retention, yet when this recession arrived those plans were forgotten. It is important to remember that employees are as nervous about the economic climate as you are. More than ever it is important to continue focusing on employee retention and morale including:
Communication: Staff can become anxious based on the nonstop flow of negative information in the news. Frequently communicate honestly about what is happening at the company. More importantly, communicate what each staff member can specifically do to keep the company successful and to take advantage of opportunities.
"Fix" Incentive Plans: Incentive plans were put in place to reward and motivate. These plans can have a negative effect on morale and retention if talented employees have no chance at earning incentive dollars because of marketplace changes. Obviously it costs money to "fix" incentive plans, but this action may make sense for certain talented employees. If you underpay someone for too long, you risk losing them whether we are in a good economy or a bad economy. Broken incentive plans are a major problem right now and many highly talented employees are looking for new jobs for this reason alone. Fix the situation before it becomes a problem.
Give Back To Employees Where You Can: If you don't have extra money to spread around, look for opportunities to give back to employees wherever possible, employees will certainly appreciate the gesture. For instance, if business is down, maybe you can cut back an employees hours; consider flex-time, maybe staff cuts provide an opportunity for increased responsibilities (not just more work); or consider providing training that will be valued by the employee.
Remind Employees That They Are Valued: It never hurts to remind your employees that you value them and care about their development.
There is a need for top talent in all economic circumstances, and the pressure to attract and retain top talent is going up, not down. This negative economic cycle will pass and we will again be struggling to find qualified staff. Macro demographic trends illustrate that we produce too few employees for available positions. Consider the above suggestions so that your company will thrive when times are better while your competition is busy recovering.
Aaron Green is founder and president of Boston-based Professional Staffing Group and PSG Offshore Resources. He is also a member of the board of directors of the American Staffing Association. He can be reached at or (617) 250-1000.
About HR Columns
Featuring human resources advice and columns from The Boston Globe's On Staffing and Hire Authority writers.