Staff cut costs greater than savings

BY CATHERINE HARRIS

One third of companies are expecting to cut staff in the next three months. Catherine Harris looks at the options they face.

When things look bleak, it seems an easy fix to cut staff. When employment accounts for up to two-thirds of a business' costs, employees are an obvious target.

But human resource experts say employers should be sure they're not shooting themselves in the foot.

"Remember, your employees are often the key to the success of your business," says Max Whitehead, chief executive of human resources firm The Whitehead Group. Where once employers were loath to cut staff, he fears they are now too quick.

Skills shortages made staff valuable but in his experience, when the winds change, "there is an automatic trend of initially thinking about carving your staff first".

Experts say reducing staff should be the last resort because staff often possess significant intellectual property. Then there are the direct and indirect costs - paying redundancies and re-hiring when the economy improves - to say nothing of the impact on morale in the meantime.

Alternatives range from the radical - reducing hours or pay - to the obvious, such as deferring capital expenditure, retraining at-risk staff and bringing outsourced work in-house.

Jens Butler, an Australian- based analyst for global advisory firm Ovum, says it is easy during a downturn for chief executives to be driven by "a fear of the unknown".

What's needed, he says, is long- term vision, and that might mean finding other means of cutting employment and operating costs to hang on to their core assets: "their people and their knowledge".

"At the end of the day the CEO still has a business to run and needs to consider what options are available in times of falling revenues. However, with the service industry accounting for a third or more of overall GDP in economies such as Australia, the US and the UK, organisations are far more dependent on knowledge workers, their knowledge, ideas and networks."

Tensions in the workforce are rising, Mr Whitehead says, with employers now demanding high performance from employees they were previously happy with.

"There's a bit of resentment from . . .small to medium employers particularly, feeling the strain of lack of profits and probably even some losses, and seeing employees just plodding at the same pace as they were before."

However, he has also seen some employers prepared to make personal sacrifices to retain staff.

Staff are also coming to the party. The four-day week is "becoming very popular."

When redundancies are needed, a bit of sophisticated thinking is needed, Mr Butler says.

"There are too many examples of firms that simply went through their organisation and cut every group by a static, fixed percentage.

"Unfortunately, those teams were already running lean and were subsequently unable to respond to critical projects while still carrying resources that were inappropriate for the path ahead."

Beverley Main, chief executive of Human Resources Institute of New Zealand, thinks this recession is different than the last because it is not affecting all sectors.

She says most employers believe the recession is not going to last very long, and the talent shortage "means the smart ones have figured out that you don't really want to dump everyone".

"I don't think it's going to be like it was in the early 1990s, where pretty much everyone just got systematically made redundant . . . A lot of organisations have a freeze on recruitment, so they're spreading the tasks around, using a bit of secondment."

Nevertheless, inquiries about redundancy and restructuring are "substantially up" at the employers and manufacturers group EMA Central, says Angela Walker, team leader of employment relations.

However, there are exceptions.

"[I was] talking to an employer just last week who is focusing very much on trying to avoid potential cuts in staff.

"They're making a loss at the moment, it's not sustainable long- term but they have told their staff that they're not going to be making any cuts for a period of time because they're all looking to see what they can do in terms of expanding into other areas, focusing on getting the business on track."

For the staff who remain, Ms Walker says employers need to be aware of unique recessionary tensions, created by people who might have moved on staying in their jobs.

"That creates some particular issues, in terms of you're more likely to get personal grievances because people who may have moved straight into another job if something went wrong may not be able to move immediately into another job. You tend to get more performance issues, incompatibility, more stress at home."

However, "if the person isn't performing, then it's probably increasingly important for the employer to deal with it rather than put up with it."

Another key, Ms Main says, is to communicate openly with staff.

She advises managers to keep workers appraised of the company's situation and to ask people at the coalface to come up with ways to do things better, "to give people an opportunity to help with survival".

Mr Butler quotes Peter Drucker, regarded by some as the father of modern management: "Layoffs should be a last resort . . . as discarding skills and knowledge is a short-sighted strategy."

MANAGEMENT TIPS

* Recruitment - do you really need the position?

* Is someone able to take part or all of the role? Could someone be retrained?

* Trial periods - must be in writing, only for staff hired after March 1, for staff who haven't been hired before, and for firms with fewer than 20 staff.

* Defer operational expenditure instead of cutting staff.

* Reduce hours/four day weeks.

* Remove bonuses, especially at senior levels.

* Cut insurance and pensions.

* Encourage unpaid vacations.

* Enforce service leave.

* Consider offering "loyalty bonuses" with a promise to get paid back when times are better.

- © Fairfax NZ News