In the wake of the COVID-19 pandemic, several Organizations across sectors have reacted in a knee jerk fashion by resorting to layoffs across the board. As the Indian economy falters due to the ongoing coronavirus outbreak, millions of jobs, across sectors, are on the line.
Estimates released by the National Sample Survey (NSS) and Periodic Labour Force Surveys (PLFS), on March 31, suggested that over 136 million non-agricultural jobs are at immediate risk. Travel & tourism, leisure and hospitality, IT, aviation and automobile sectors have been hit the worst. Over 1.5 lakh people across India’s various IT firms are expected to lose their jobs in the coming months, as per an April 3 report by Moneycontrol, which cited HR experts.
It is indeed unfortunate that where human capital should be seen as an investment many organizations continue to view it as cost and respond by first attacking this without realizing that essentially it is a short term action with a massive negative impact on morale and business in the medium to longer term.
On top of paying severance, alienating employees and risking litigation, the morale hit will certainly impact productivity and engagement among survivors. Further, when the business climate improves, Companies would be saddled with the cost of recruiting and training new employees, further delaying the bounce-back. It is also likely that Companies could almost certainly face a significant exit of critical talent which will impact their businesses negatively once the economy recovers and demand improves. That is the time when the competition will lure key talent away and Companies will have no way to hold them back as they would have already lost credibility by not standing by its people when times were tough.
There are no easy answers, and layoffs may eventually be inevitable. But, organizations need to consider every possible option before choosing to reduce their workforce that has a significant social impact and human cost.
Now, what could be some of these alternatives to layoffs and headcount reduction especially at a time like this?
- First, reach out to your people for ideas; involve them in your risk mitigation plans and actions. Solicit suggestions from staff about how to cut costs and improve productivity. Even if what you save doesn’t meet your shortfall expectations, getting employees involved can ease insecurity and promote solidarity and engagement. Recognizing people who come up with innovative cost optimization and risk mitigation ideas would also create positive traction within the Company.
- Second, ensure a hiring freeze; one of the quickest steps to control employee costs is to freeze hiring for all non-essential positions. This allows the Organization to consolidate the employees you have to complete the work that is essential for serving the customers of your business. You can strategically continue to hire in areas where skills are difficult to find and in positions that will immediately generate revenue for the business. However, you can also hold off on filling non-essential positions that are vacated during the hiring freeze.
- Third, freeze salary and benefit increases. Employees won't be thrilled, but this will be viewed as less stringent by critical employees than some of the other options. When business conditions are turbulent and unpredictable, it makes no sense to add additional costs to the permanent bottom line; it becomes imperative to stop the bleeding and conserve cash. Pledge to review this decision periodically and provide a time-frame in which employees can expect an update. Be sure to follow through with this communication, or attitudes toward the freeze will quickly sour.
- Fourth, consider a virtual office; Organizations can free up office space to rent or downsize by keeping essential staff onsite and sending everybody else home to work remotely. Off the shelf remote working tools such as Zoom. MS Teams, Go- to- meeting, etc can bridge the Internet divide by allowing managers to video-conference with employees or periodically review with them. This will enable companies to bring down their rental costs significantly. Further, it’s a great time to invest behind relevant digital tools to enable virtual team working and productivity on the back of real-time data insights and analytics enabling agile decision making on the back of multi-device capability.
- Fifth, cut out the extras and the bad costs; freeze unnecessary travel and overtime. Postpone non-vital equipment upgrades; freeze or defer capital expenditure. Nix unnecessary office perks like club and gym memberships, company guesthouses & holiday homes, entertainment events or find cheaper alternatives. Companies need to use this time to identify value destroyers and eliminate them thereby optimizing their operations further.
- Sixth, schedule unpaid employee furloughs; a furlough is an alternative to layoffs. In this case, employees take unpaid or partially paid time off from work for periods of time ranging from weeks to a year. The employees generally have either scheduled time off or call-back rights and expectations. Examples of furloughs include closing a business for a limited period of time, reducing employee time on the job to two or three weeks a month instead of four, and asking employees to take two or three days a month off without pay. In a furlough, benefits usually continue, which is one of the differentiating factors from a layoff. Even so, the negative impact on the workforce can be high, and many valuable employees will likely leave.
- Seventh, exchange your staff with other employers; larger companies can do this within their own umbrella of subsidiaries. Smaller firms can choose partner companies or vendors. Ideally, the host firm would pay employee salaries and get the use of a skill set like marketing that it might not have on their staff rolls. The mutual benefits are a cross-pollination of skills, retention of employees and temporary wage relief. This is possible to explore across non-compete organizations bringing out the possibility of both knowledge sharing and employee cost-sharing thereby minimizing the employee cost burden on a Company.
- Eighth, explore Salary or Benefits cuts; such moves only gain credibility when communicated well and when they start at the top with the CEO and the Board taking the lead as it can help pad the blow if senior management takes a bigger cut than the rest of the company with employees at the lowest threshold level being spared the impact. Companies can also offer buyouts for employees with longer tenure. However, Organizations need to think through the ramifications of this decision; the best employee; the ones you most want to retain going forward, who are critical to your company’s future will be negatively impacted by the decision; and they will have the best options available once the economy recovers. One way to mitigate this risk is to build in a “Win-Back” plan as in that when the business bounces back and hits selective milestones the employees have an opportunity to “win back” the salary amounts that had been cut. The salary cut can also be instituted through shorter work-weeks, by reducing the number of hours employees work and proportionately decrease pay. This can be a seasonal arrangement that can be extended until the business recovers fully on the back of increased demand. Benefits optimizations can also be made in areas such as medical insurance where the co-pay element of the premium could be enhanced thereby reducing the impact of such pay-outs.
- Ninth, cut part-time staff and contractors/consultants and renegotiate professional fees & labor contracts; if it comes down to this, it’s legally easier and smoother to discontinue their contracts or rehire as necessary. Instead of using costly temporaries to fill gaps, consider rehiring retired employees that already know your business practices. Consultants and temporary/part-time employees expect to be let go when the business needs change; especially when business is cyclical or seasonal in nature. While this causes some turmoil in the lives of temporary employees, the employer has the flexibility to ramp up or down the requirement of headcount. Temporaries and Consultants provide a cushion of safety for the ongoing employment of regular employees. To avoid employee layoffs, let all consultants and temporary/part-time employees go. To drive productivity, take the opportunity to renegotiate labor contracts by building in productivity clauses with linked incentives.
- Finally, enhance the linkage of pay to performance; increase the variable component of total pay through more aggressive bonus, sales & manufacturing incentive and variable pay plans. Enhance differentiation in pay levels across low, average, high and outstanding performers and those with high potential. Build-in Long Term Incentive Plans for critical talent based on key milestones spread over a two or three-year time-frame.
In conclusion, if I may add when, the world of work is experiencing a new normal, in the form of social distancing, reduced business travel and remote working; it is absolutely critical that it doesn’t result in the employee’s emotional distancing with their peers, superiors and team members. The need for connectedness and engagement has never been felt to be more important and relevant. Amidst the dark clouds of challenges, Organizations need to seek out the silver lining of opportunities in these tough times and start taking the above actions to both optimize on people's costs while mitigating talent flight risk towards building a sustainable organization.