COVID-19 has us all in “uncharted waters.” We’re daily faced with circumstances and decisions that we’ve never anticipated. In this post, I want to speak directly to executives who are looking for alternatives to layoffs when dealing with budgetary constraints brought about by this crisis.
Indirect Costs Associated with Layoffs
Before we consider alternative solutions, I need to highlight the indirect costs that will affect your organization when you reduce your workforce. Aside from reducing your expenses and increasing your cash flow, consider these drawbacks when you choose to layoff your workforce:
- Your organization may face higher unemployment taxes.
- Your remaining employees may experience “survivor syndrome” which can reduce productivity and morale.
- You will lose the investments you’ve made in your workers. This includes access to their knowledge and social capital.
- Routinely laying off employees can negatively affect your company’s reputation among job seekers, reducing the ability of your company to find quality talent when markets improve.
Alternatives to Layoffs
Keeping the above indirect costs in mind, let’s consider these alternatives:
1) Incentivize Your Employees to Cut Non-Human Costs
Your business most likely conducts operations with a fair amount of “slack” or areas where you can cut your costs. Indeed, the premise of lean, six-sigma, and other managerial practices is that your organization can improve bottom lines and competitiveness by finding and eliminating waste.
Now, consider this powerful combination: You can incentivize your employees to seek out waste that can be removed. When you do that, you’re tackling one of the key first steps for reducing your organization’s costs, that is eliminating waste and reducing restrictions. Involving your employees in this exercise turns them into a cost-cutting asset to your organization.
2) Repurpose Your Human Capital
Now is the time to explore ways you can repurpose your employees for work inside and outside your firm. Consider these examples:
- Faced with declining restaurant sales, a food service company repurposed its delivery drivers and allowed them to deliver for other wholesalers who were facing increased consumer demand for products.
- With a reduced consumer demand for flights, some airlines are repurposing their crews for cargo and humanitarian missions.
3) Transfer Internally
During a downturn, your existing vacancies serve as another opportunity to reduce your need to make layoffs. Rather than testing the external market, you can make internal transfers to fulfill your staffing needs. Internal transfers have the added benefit of streamlining your application/interview process because you’re working with employees you already know and trust.
Off the top of my head, I can think of many successful examples of this strategy. For example, a multi-national chemical company chose to temporarily close their external job postings and instead allowed existing employees to fill roles.
4) Explore Compensation Reductions
Be creative in saving costs by exploring options for reducing compensation. You can do this selectively or across-the-board:
- Management-Level Pay Cuts – The top managers at one outdoor clothing company announced that they were taking pay cuts. This allowed them to shift compensation to remaining employees and avoid job cuts. In addition to saving costs, this type of scenario has the potential to boost morale across the board when managers put the needs of junior employees above their own.
- “Across the board” Cuts – In other instances, temporarily reducing compensation “across the board” brings about a “shared pain” while also increasing everyone’s sense of job security by avoiding the loss of employees.
- Reduce hours for non-exempt employees – During this current crisis, one aerospace manufacturer in hard-hit Italy has maintained 60% production on its lines by allowing employees to opt-in for work and also employing practices and separation that dramatically decease the threats of infection.
5) Furlough Rather than Fire
It’s important to remember that this current situation happened during a time of an exceptionally strong world and national economy. Once we’re through this, many companies will be ready to ramp up and redeploy their employees as demand increases.
Therefore, it often makes sense during this time to temporarily furlough employees rather than fire them and end their employment. Furloughing allows your employees to apply for unemployment while giving you the ability to rehire them once the economy normalizes.
Don’t Fly Blind
As I’ve pointed out, you have options. The COVID-19 Pandemic doesn’t require you to make layoffs to cut your costs. But, whatever decisions you make, one thing is certain: The key to navigating this crisis wisely is making evidence-based and informed decisions. Organizations that understand their employees make wiser investments and strategic choices than those who “fly blind.” So, I encourage you to keep in touch with your employees, especially those that are remote, as a way of informing strategic staffing choices.
Toward that end, one of the products we offer clients is a “State of the Workforce” assessment. Our assessment provides insights into the work and well-being of your employees, their loved ones, work practices, and behavioral intentions.
As a neutral third-party, we’re able to get honest feedback from your employees, feedback they wouldn’t necessarily give you directly. Armed with this intelligence, you’ll be able to make informed and wise investments as you navigate today’s economic storms.
Don’t “fly blind”, contact Red Castle today. Give us a week, and we’ll be able to provide you with the data and analyses you need to navigate today’s economic storm.