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

Kris Dunn Culture, Kris Dunn, Retention

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….