During good times, organizations often refer to people as being “our most valuable resource.” Because human capital is often one of the largest expenses, it also means those valued resources are at risk. The difficult truth is that layoffs are sometimes the only way to help a company survive, but my hope is that each leadership team will carefully assess each area of their business for alternatives before downsizing their workforce.
Each country, state or province will have its own labor laws and legislation. I recommend that you seek counsel from an experienced employment or labor lawyer and from a seasoned human resources executive or consultant to help you navigate your decisions and prepare your communication plan, and to help both you and your employees weather the storm.
Here are 10 ways to adjust your cost base if revenues have decreased and layoffs seem like the only option.
1. Discretionary Spend
To keep morale high, many companies invest in employee engagement in the form of company parties, office snacks, social events, etc. There are many “nice to have” perks that we offer our staff and customers that can be cut back without dramatically affecting the way we work. If your culture is authentically aligned behind your purpose and values, these perks will be missed, but it should not affect your culture or your productivity. The amounts of these savings can vary from small to large, but even the small things can add up and may save jobs for a period of time.
2. Alternatives With Larger Impact
Don’t cut back on anything that damages your brand equity unless absolutely necessary. The idea is to preserve what is at the core of who you are while letting go of some of the peripheral benefits. This next group of cost-cutting has a larger impact on your business, but will still allow you to manage without disrupting revenue or cash flow. Some examples could include reducing marketing spend, subletting your office space, cutting back on travel, temporarily trimming employee benefits and so on.
3. Government Assistance Programs
There are many government programs that include grants, tax deferrals or crisis assistance funds available to businesses and individuals during a state of emergency or national crisis. Do your research, and apply for any assistance that will make your situation better.
4. Hiring Freeze
Protect the employees who have been loyal to you and have helped grow your business before bringing on any new talent. If someone decides to leave, think twice before replacing them, and keep replacements to essential hires only. For any replacement hires, consider reallocating the headcount to other areas of the business that see a greater impact on customer value or business revenue. You may be in a situation that calls for an explicit freeze on all new hires and replacement hires.
5. Salary Freeze
In a competitive market, it’s important to pay for the value that your employees bring to your company through salary increases or bonus payouts. In hard times, many of your employees will appreciate job security for themselves and their teammates instead of a bonus that puts the business or their teammates at risk. Determine and communicate transparently how long the freeze will be in effect so everyone understands the timelines.
6. Salary Rollbacks
A different and more creative approach for cost savings is by “rolling back” everyone’s salary to the amount that they were earning prior to their last increase. If your annual increase budget is 3%-4%, this will immediately save you this amount over your entire workforce. Although salary rollbacks aren’t the ideal situation, they’re still more desirable than having to cut jobs.
7. Pay Cuts
If you need to cut salaries by 20%, you could either choose to lay people off, or you could choose to ask every employee to reduce their pay by 20%. While no one will love the concept of earning less money, most employees will prefer to keep 80% of their salary over nothing at all. Once again, you should aim to put a definitive time period for the pay cut in place or offer to top up salaries retroactively when things settle down. You may want to communicate transparently about how much you need to conserve and then ask each employee to decide on the amount they can reduce their earnings, thereby giving them some control.
8. Job Sharing
Job sharing is similar to a pay cut, but in addition, you also reduce the working hours. In this instance, two people would actually reduce their jobs by 50%, leaving you with two people filling one job. The advantage is that it reduces the salary load on your company while reducing the time commitment for employees, leaving them open to alternative sources of income.
9. Voluntary Layoffs
There is always the opportunity to offer your workforce an opportunity to take advantage of a severance package for those who may want early retirement, an opportunity to transfer skills to a new career path or simply to make a change that they otherwise would not be able to make. There are legal requirements for each employee that are often connected to their length of service, age and ability to find alternate work. Wherever possible, be more generous than the minimum legal requirements, and use the opportunity to celebrate them on their departure.
10. Temporary Layoffs
Before taking on a reduction in your workforce, you may want to consider if there is an option to do a temporary layoff. This is commonly used in environments that require seasonal workers and in unionized environments, but it can be applied to private companies as well. With a temporary layoff, the employee has a time period where they are unpaid and they step down from work with the understanding that they will be recalled when the business is able to take them back.
If your company is going through a tough time, the best recourse is to care for your employees. They may not remember what actions you took, but they will remember how they were treated.
