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Make Sure Before You Cut
by Kari Rosand-Scanlon
Reductions in workforces not only negatively affect employee morale, they also offer signs that an organization is vulnerable. Here are some popular alternatives to layoffs -- as well as steps to reduce the hassle, cost and risks inherent with such actions, should they be necessary.
Ten percent of hiring managers and human resources professionals say they expect to cut workers by the end of the year, according to a recent survey by Harris Interactive. An additional 14 percent say they already eliminated jobs in the third quarter.
Faced with a slowing economy and lacking business opportunities, human resource leaders and company executives have a difficult decision: How to survive?
Many employers turn to a reduction in workforce. At first glance, cutting payroll costs and taxes seems like an easy answer that can be pulled together fairly quickly. However, the long-term costs might outweigh the short-term advantages.
Often executives leaning toward downsizing haven't fully considered all the ramifications. HR leaders should make sure all options are discussed and carefully considered before such a decision is made.
First, a reduction in workforce is seen as a sign of a vulnerable business and perceptions by various audience groups will need to be managed.
The company's standing in the community may suffer. Prospective customers may be concerned that work will not be completed. Current customers may look to other contractors for future projects. The media may report unfavorable stories. Prospective applicants and top-performing employees may take jobs elsewhere. The cumulative long-term effects can be severe.
A reduction in workforce also negatively affects employee morale. Cutting 10 percent of a firm's workforce doesn't necessarily mean that 90 percent of that workforce will still complete 90 percent of the work.
Surviving employees, some of whom will be dealing with feelings of guilt, will spend more time whispering about business conditions and wondering whose next. Workers' compensation claims and employment practice liability claims often increase as unsettled employees are more motivated to file since they fear the end of their income source.
And following a layoff, remaining top performers often begin looking for employment elsewhere. Your star individual may soon become someone else's.
Popular Alternatives to Layoffs
So decision-makers must ask the difficult question: Faced with a need to cut costs, is a reduction in workforce the only answer?
There are alternatives:
1. Institute a hiring freeze. This may include leaving positions open, combining work duties or deciding to suspend plans for growth positions. For example, a smaller client of mine decided not to replace her receptionist. Instead, her duties were distributed among the remaining support staff.
2. Schedule a pay freeze. This may include eliminating pay increases for a year, capping pay grades for a year, eliminating nondiscretionary bonuses or decreasing employee pay rates.
One idea to lessen the pain to your employees is to provide small bonuses in lieu of pay increases. The bonus can be 2 percent of salary instead of 4 percent of salary. The company saves in two ways -- the bonus is smaller than the salary and the bonus is a one time "payment" instead of an ongoing "payment."
3. Ask employees for ideas to save money, cut costs or increase productivity. They work the front lines and know the best solutions. Some companies offer employees a percentage of the savings from the suggestion, which encourages employees to offer ideas focused on reducing corporate costs.
If your company is burdened with a high workers' compensation rate, tying a safety incentive to a lower rate can be a win-win. Employees are rewarded financially for working more safely and the costs associated with the incentive come directly from the savings, not the bottom line. To calculate your savings, look at your credits and your experience modification rate.
4. Cap vacation and sick time accruals to reduce your company's future liability (if permitted under state statute or union contract). For example, my employer limits annual carryover to 40 hours. Having plans that encourage employees to take vacation time at the pay rate that they earn it keeps salary ratios in line. Check your organization's culture to ensure employees are encouraged and able to take time off.
5. Mandate the use of vacation and sick time to eliminate your business's future liability. Paying your employees at their current pay rate instead of waiting to pay at a future, and likely higher, rate will serve two purposes -- your employees will be taking time off during your slow time and you will be lessening this liability.
6. Move to paid-time-off bank. Most companies provide less overall time off with a PTO bank than a traditional vacation and sick leave policy. For example, a warehouse that provides 10 days of vacation and six days of sick time moved to 13 days of PTO.
The tradeoff for your employees is they are able to manage their own time. Employees with children are able to take extra sick days without feeling guilty. And, employees who rarely used sick time before feel like they can actually use the time off they are offered.
7. Revamp your benefit offerings. Of course, changing premium amounts has been a common tactic. Other options include offering more than one plan so employees can select the one that works best for their families.
A new tactic is tying employee premium amounts to a company wellness program. Charging lower premiums for employees who participate in programs and/or meet certain health conditions provides a large carrot.
8. Encourage voluntary time off without pay. This option is ideal when work is slowing, but not yet dangerously slow. Giving employees the option to select their time away gives them some control over the situation. Employees can chose to spend an extra day holiday shopping, spring cleaning, scheduling personal appointments, starting vacation early or just enjoying the day.
9. Reduce your standard workweek. For example, instead of a standard 40 hour work week, establish a 32- or 36-hour work week. This choice keeps everyone employed.
Keep in mind your benefit requirements when deciding your baseline. Reducing your work week to keep benefit levels the same is best. However, reducing your work week to eliminate benefits is still a viable concept.
Even if employees must elect COBRA, you can offer to pay a smaller portion of the premium than your current rate instead of requiring your employee to pay the full premium.
10. Offer longer-term sabbaticals. Target this solution to your top-performing employees. For example, select employees who are willing to pursue educational options such as an M.B.A. program that will improve their value your company.
11. Network with other business owners' and learn from their experiences. Many business owners have survived past challenging business cycles and are willing to share their experiences.
If Layoffs Are Imminent
If a reduction in workforce is clearly the only option, here are some steps to reduce the hassle, costs and risks inherent with the move:
1. Select employees based on seniority, performance or skills. While most decisions are still based on seniority, some careful consideration may show that current skills may be more important.
For example, a manufacturing plant with tenured employees explained that employees had a choice -- to have their position eliminated or to be cross-trained on different equipment. More tenured employees choose to be laid off instead of having to cross-train.
Initially the plant managers were upset that they were losing the knowledge, but quickly realized that it was easier to respond to client demands when employees were able to operate all the equipment instead of only certain pieces.
2. Document and consult any employment agreements or union contracts. Be aware that there may be compliance issues to manage, including federal or state notification requirements. Panicked employees are more likely to file workers' compensation claims or harassment claims. Often they hope the claim will keep them employed.
3. Contact your local unemployment office in advance. These organizations have programs to assist displaced workers. Remember to factor in increases to your unemployment tax rate. It's a complex formula, and you might consider speaking with a consultant to determine the long-term financial implications.
4. Expand severance packages to include cash and benefits continuation. Confirm the layoff's impact on benefits and provide COBRA, when necessary. For example, offer to pay health-insurance premiums for three months.
5. Offer outplacement services such as resume writing, sourcing and interviewing. Or host job placement seminars internally for departing employees. Showing employees who remain that you still care about their former co-workers is an important goodwill gesture.
6. Provide employee-assistance program services to departing and remaining employees and managers.
7. Do it all at once. Rounds of reductions scare employees even more as they will never be secure in knowing if they'll be next.
8. Plan carefully. Consult with your public relations department to help manage the messages being sent to surviving employees, business partners, customers and other stakeholders as the company moves through this difficult process.
9. Keep moving forward. Continue to recognize employee accomplishments and communicate overall strategies for survival. The rumor mill will be grinding at full speed. Slow the pace by communicating other strategies for surviving the marketplace.
And when you're all done, communicate some more. Show optimism and lead the way.
With careful considerations, human resource leaders can help their organizations respond effectively to the changing business climate, take care of employees and position the company for future success.
[About the Author: Kari Rosand-Scanlon, PHR, is a human resources consultant for Minneapolis-
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