Managing people value

Situation

The current situation in the financial markets is forcing many companies to look for opportunities to reduce costs, including personnel costs. However, before making any radical decisions, one must consider the long-term implications of these actions.

Only a short while ago, there was a perceived staff shortage in several industries. Due to such a high demand for professionals, candidates felt free to dictate the terms of their contacts, which contributed to continuing salary growth. Over the past few months, the situation has changed dramatically: many companies have announced reductions in staff, salaries and incentives, as well as other steps to cut costs as quickly as possible. How justified are these steps and what long-term implications will they have? How will they affect the company’s brand in terms of its reputation as an employer? Will the dismissal of certain employees leave important functions in the company vulnerable? What direct and indirect losses will the company incur? Do these actions comply with current labour legislation?

Options

• Is cutting personnel-related costs an option?
  At times, a complex market situation may justify reasonable budget restrictions or a moratorium on expenses such as business class flights, parking and lunch for employees, a limited allowance for mobile communications, taxi services and corporate events. Distance learning programmes may temporarily replace expensive trainings. Foreign business trips that are not related to current projects or the development of important accounts may also be suspended. Finally, it would be logical to consider cutting costs that are directly related to HR. This includes identifying overlaps in HR activities across different offices as well as the lack of unified operating standards and controls.
• Reviewing salaries, bonuses and other payments — is it an option?
  Prior to salary cuts, a company may consider introducing performance-based elements to the remuneration system that are variable in accordance with the financial health of the company. Some benefits, such as voluntary insurance packages for staff family members or company gifts, may be either discarded or restricted to certain staff levels. Before going to extremes, company management must should examine available salary surveys and benchmark the company’s salary rates against the market average. Indeed, an overall salary cut will entail significant savings. However, this causes general resentment among staff, which, in the long term, may affect the company’s reputation as an employer and could soon force valuable employees out of the company in search of new work.
• Is personnel reduction an option?
  Nothing scares professionals more than the prospect of losing a job at a time of scarce opportunities. Since the default in 1998, a company’s strength and its HR policy have been of primary interest to those looking for a new job. Taking the market into consideration, announcements of mass dismissals are seen as a sign of a company in trouble and are likely to scare away job seekers or even clients. If a company is hard pressed to reduce staff, this is normally done by identifying low-performers. To do so, the company should have transparent performance indicators that every staff member is fully aware of.