Hey Talent Magnet – Layoffs or Salary Freezes? Which Would You Choose to Protect Your Employment Brand?

OK – you're the CEO, Director of HR or Director of Talent Acquisition, and you're at a 2009 planning meeting.  While no one can look into a crystal ball, it looks like your company will be impacted in a significant way by the economy, as the 90-day pipeline sits at 60% of it's usual level.

With that in mind, your company has always lived within its means.  You don't burn cash, so the BW pop up - cuts conversation turns to the best way to minimize the cost of talent as your firm rides through the downturn. Two options are presented to help your company reduce the cost of talent, and you're expected to weigh in with your preference.  Do you advocate:

A.  Layoffs to reduce cost (while maintaining your budget for annual increases, current level of benefits, etc.)

B.  A freeze in pay increases and tweaks other items like benefits to hopefully avoid the need to do layoffs and impact employees in your company.

What say you? Hit me in the comments with your thoughts, and be sure to give me your take related to which approach is better for your employment brand – meaning it will maximize your ability to attract and retain talent, both now and when the economy picks back up.   It's a tough, but real, spot.  After all, layoffs are never good for the brand when you're attempting to recruit, and salary increase freezes have never been known to maximize retention.

Notes on what's being seen nationally along these lines from Business Week:

"But there is one important way in which history is not repeating itself. Average annual earnings of workers fell for several years in the 1930s but have not fallen since. And it looks like they won't fall in 2009, either. Businesses are reporting that they plan to increase pay by roughly 3.5% in 2009 for U.S. workers, according to recent surveys by compensation consultants Mercer, Watson Wyatt Worldwide (WW), and Hewitt Associates (HEW). Salary increases are crucial because rising wages make it easier for some families to pay their debts.

The news isn't all good. Pay hikes may fall below current expectations, and while employers are planning to raise pay, they are simultaneously cutting jobs. The jobless rate hit 6.5% in October, and many economists think it could reach 8% by late 2009. Employers are also looking for less conspicuous ways to save on benefits, such as reducing 401(k) matches or increasing deductibles and co-payments in health plans. A Watson Wyatt Worldwide survey in mid-October showed that 26% of employers were planning layoffs or other reductions in force in the coming 12 months, while 25% planned to raise employee contributions for health care. In contrast, only 4% were planning to cut salaries. "Firms are cutting workers instead of wages," says Ethan S. Harris, co-head of U.S. economics at Barclays Capital in New York.

By raising pay while cutting jobs, companies can "thin the herd" while giving remaining workers "the big corporate hug they need," says William C. Yoh, CEO and president of Yoh, a unit of Day & Zimmerman Group that supplies high-tech temps. Starbucks (SBUX) recently announced it was cutting jobs but isn't cutting pay or benefits. "We have to take care of our partners [i.e., employees] and keep them engaged," says spokeswoman Tara Darrow."

What would you do?  Vote with your comment, and justify it from a talent/employment branding perspective….

FOT Background Check

Kris Dunn
 Kris Dunn is Chief Human Resources Officer at Kinetix and a blogger at The HR Capitalist and the Founder and Executive Editor of Fistful of Talent. That makes him a career VP of HR, a blogger, a dad and a hoops junkie, the order of which changes based on his mood. Tweet him @kris_dunn. Oh, and in case you hadn't heard the good word, he's also jumped into the RPO game as part owner of a rising shop out of ATL, Kinetix. Not your mama's recruiting process outsourcing, that's for sure... check 'em out.

9 Comments

  1. Tim Tolan says:

    KD:
    Tough choices to ponder. My first choice would be to freeze pay increases and reduce costs in other areas of the business (I would avoid changing or reducing benefits) and avoid layoffs if at all possible. RIF’s are so negative and really change the attitudes of most employees – as they all wait for the other shoe to drop and the next wave of layoffs.
    Moral takes a big hit and in some cases so does the customer service levels. Keep the service levels high and make sure you protect the brand. I have been at the table a few times in my career and there is nothing more depressing than going over the most recent org chart and making life altering decisions for others based on the company’s financial forecast. There are other options or a phased cost-cutting approach may be possible.
    Push the sales team to do remote demo’s, suspend travel, cancel a few trade shows, freeze all hiring and raises for a while and ride out the storm as long as you can before starting a RIF would be my way to address the situation. Create new incentives to drive short term revenue to the company that could make an impact.
    Have the CEO lead the company through the tough times by taking bold steps to show the troops that he/she is making sacrifices too – like going a month without pay? I’ve seen it done and made a major impact on morale!
    Management should talk about the challenges, offer solutions and address the issues – but do it with hope and confidence that things will eventually improve. Employess are looking to management for answers and for leadership. This is a time when leaders should lead!
    That’s my two cents worth!

    Reply
  2. Meg Bear says:

    I think you are getting exactly to the point of the “who flew here on a corporate jet asking for money?” question.
    Personally, I think the brand is best protected when it takes action in both directions. Of course Wall Street (and Capitalists such as yourself) need to see headcount reduction. But Socialists such as me, would like to also see high profile executive belt-tightening.
    It has been done before. Most remember Lee Iacocca reducing his salary to $1.00. I’ve seen great leaders to similar in my career as well.

    Reply
  3. Ray Arndt says:

    Pragmatically, this is likely not an issue of which one option you advocate, but rather one of how much of each and to what degree. Most important in all of this is how quickly you act. The sooner you act by contracting or freezing some of your “discretionary” expenses such as travel, off-site meetings, business entertainment, external consultant fees, etc., and by freezing or dramatically tightening the controls over new hiring actions, the less you will need to rely on job eliminations, hard salary freezes, and benefit reductions to bring your spending levels in line. Having said that, I would never advocate across the board salary freezes as that would put you at risk of losing your most productive, highest performing employees…who just happen to be the people that will improve your chances of surviving the economic storm.

    Reply
  4. Derek Irvine says:

    These are difficult choices, indeed. As this post reiterates, the latest research and industry experts are all saying people’s motivation (and performance) plummet during a recession as they are (1) fearful for their jobs, (2) angry about layoffs of friends and assuming their work, (3) consumed with rumors about the company’s future.
    A recessionary economy is precisely when companies need to get the most productivity out of fewer employees, however. Annual bonuses and even pay raises are increasingly not an option this year. So, how do you address these concerns?
    Strategic employee recognition reaffirms people in the value of their contributions, acknowledges the additional work and effort they are being asked to perform, and allays rumors through frequently updated executive messages. Done correctly, employees also understand how their specific efforts help the company achieve its strategic goals. All of this combines to increase morale and productivity.
    More on this topic of strategic recognition in an ailing economy is available on my blog here:http://globoforce.blogspot.com/search/label/recognition%20in%20an%20ailing%20economy

    Reply
  5. Diana Sadighi says:

    We’re missing a strategic opportunity here: distinguish ourselves in the marketplace by NOT laying off employees. Have we so willingly embraced our seat at the table that we can talk of ‘thinning the herd’ and reducing expenses instead of affecting people’s livelihood? If our organizations have weak(er) performers, shame on us for not coaching them to improve, or terminating them for cause. Instead, we use the excuse that we’re maintaining a strong core team by culling the weaker performers.
    Let’s not be surprised when Congress takes us to task for arbitrarily terminating employment: I can see the new pro-EFCA ads coming now….

    Reply
  6. Steve Boese says:

    I would encourage organizations to make layoffs the last possible option, once hiring freezes, discretionary expense cuts, and corporate jets are grounded. Letting good people go just to make a number on a report turn black does not seem to me to be a winning long-term strategy. It will catch up to you in the end, when the economy improves, you will be left wondering ‘Who is going to do all this work?’, that is if you are still around.

    Reply
  7. Hi Kris,
    Reducing headcount in any economic situation is always the capitalist monster equivalent of “Wall Street” routing “Main Street”.
    Not good for the employment brand.
    But it’s an economic reality nonetheless that many companies large and small have to contend with. I was just reading about Jobfox and Dayak this morning, and last week caught up with the tight-lipped Google temp layoff (end of days).
    We’re a small firm and reducing headcount is rock bottom on our list of things to do to save costs. Instead, we initiate belt-tightening with short-term salary freezes while offering flexible telecommuting schedules, more paid time off than the average companies offer, and other types of low-cost employee recognition activities.
    The local economy we live in is an embattled professional services and technology-deficient zone; there are still over 10K folks who commute from the Santa Cruz area over the “hill” to Silicon Valley, although the Valley is getting hit with downturn ripple effect. Sadly, we understand (as do our employees) that there is not much opportunity in our area for software and services folk.
    Get creative to keep your team motivated and your customer service high.

    Reply
  8. Dwight Smith says:

    People have mentioned salary freezes and layoffs. No one mentioned salary cuts. If the management and the board does it honestly, a program can be offered to the employees to trade their salary for equity in the company. The equity can come in the form of restricted stocks or options. This choice is available only to the employees of relatively big corporations but it may be the best choice. If I can help my employer by trading my salary for future gains, I will do it. Everything is cheap at this time. The best part of this deal is that participation in this deal can be completely optional.
    A smart CFO can design a plan that is cheapest, legal, fair to stake holders, and maximizes risk/reward.
    Dwight

    Reply
  9. Someone ask: write a good poem, is by talent? Still rely on art? My opinion is that of genius without intense Labour, genius without training, useless, Both should be combined with each other for that.

    Reply

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