Written by Pat Perry
President, ERC
It has been very interesting watching
America’s workplaces react to the recession. Some organizations reacted without much thought and started slicing jobs back in October. Other organizations laid off workers after seeing drops in their business. There are even profitable organizations cutting jobs using the economy as an excuse to “clean house.”
The cost cutting measure we hear most about from the media is layoffs, because it’s the kind of news the media loves to share. What the media misses are the other approaches good organizations are taking to reduce costs and improve productivity in good and bad times. That’s what makes them good organizations.
Reduction of payroll through layoffs is not always the answer to combat a soft economy. Unfortunately, fear takes hold of too many corporate “leaders” turning them from thoughtful decision makers to reactionaries. When used as the primary cost cutting tool, layoffs may look good on paper in the short run, but can seriously affect an organizations’ long term business health.
Challenging times requires new and creative thinking about managing a business and the workplace. In good times, we hear CEOs echo across the land that “our people are our most important asset.” Yet, in some organizations that “great asset” has been treated like a number over the past six to eight months.
We all recognize that there will be an economic upturn. When it occurs, the organizations that take the right steps during these challenging times will come out of the gate way ahead of the competition. It starts with a balanced strategy on combining cost reduction with talent attraction and retention. Here are some key elements to consider in developing the strategy:
Compensation – Cutting costs through salary reductions should begin at the top, including paid Board members. Salary reductions can be very effective in the short term to cut costs and preserve jobs. Nobody likes their pay cut. But if it means retaining some good employees, it is well worth it in the long run. Plus, in better economic conditions, those who took the cuts can be rewarded for their short term sacrifices.
Health Insurance – Aside from payroll, this is one of the biggest ticket items for an organization.
Begin by developing a strategy. This strategy would include your plan having access to all major hospital systems, integration with health/wellness initiatives and a plan design focused on optimal employee utilization of the program. Real cost savings come from good plan experience rather than short term price reductions. Unfortunately, too many brokers “shop” insurance carriers for the lowest price without regard to any benefits strategy. That is why it is a good idea to ensure you have the right broker. There are multiple ways outside of price alone to reduce costs with your health insurance these days. The right broker and carrier will assist you with making this happen this year and years to come.
Employee Benefits - In addition to health insurance, there are a number of opportunities to manage costs while maintaining an excellent, meaningful array of benefits for your employees. Again, it is critical to have a strategy based upon your employee demographics, interest in attracting and retaining top people and of course budget. Also, make sure you understand what benefits are most important to your employees. Ensure that your organization takes advantage of cost saving, flexible spending accounts and voluntary benefits – both designed to enhance individual benefits and add to an employer’s offerings. Depending upon your plans there may be opportunities to reduce expenses without significantly hurting the programs in place. For instance, one consideration may be to reduce the employer match on the 401(k) plan in the short run. Employees will still appreciate the pre-tax deferral of a portion of their income and recognize that given economic conditions, a temporary reduction in the employer match may be appropriate, especially if it means saving some jobs.
Bye-Buy – There is no doubt that this is a “buyer’s market” for great talent. There is a tremendous amount of talent available and smart organizations are hiring these individuals. Yes…hiring! These organizations are stocking up on their “A” team now to help them through a tough economy and to take advantage of future market opportunities. On the other hand, this is a very good time to ensure that you are managing the performance of individuals who are not performing to expectation. Working within the framework of your organization’s performance management system, replace non-performers with the top performers available in the market.
Shop Smart - Your organization probably outsources some HR related services such as payroll, background investigations, temporary staffing, etc. Sit down with your current vendors to discuss ways to adjust the scope of the services you receive in order to control costs. For large-scale purchases from one vendor ask about volume pricing. Chances are there are some cost savings available – you just need to ask.
We are certainly in challenging times, and yet 2009 is abundant with new and exciting opportunities. Unfortunately, fear has weakened our corporate knees. It’s time to stand upright, make sound, fearless decisions and maximize what 2009 presents.
