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How to Avoid Layoffs: Cost-Cutting Strategies for Business

Cornerstone Editors

The world of work changed virtually overnight with the global spread of COVID-19. In this series, we'll share personal stories and perspectives from Cornerstone employees who—like so many of us—are doing their best to balance life, work and learning from their couches, kitchen tables and other makeshift office spaces.


According to a release from the Labor Department, the economy lost 701,000 jobs in March—a figure far more negative than anticipated, although economists said it captured only a fraction of the carnage in the labor market in the second half of the month. Right now, nearly 30 million Americans have filed for unemployment. This number is thought to be larger, but states are limited by the number of applications they can process at a time.

Most businesses were not built to survive our current climate, and many won’t. Those that have should start taking steps to prepare for future downturns in the market. And unfortunately, many of these spending cuts affect employees’ pay. This is not always the case: Some companies set aside crisis management budgets to protect workers’ compensation in these situations. But without the deep pockets of an Amazon or Facebook, most businesses will still have to make pay cuts in order to keep operating budgets at a minimum and avoid layoffs or closures. But before making changes to employees’ compensation rates, companies should consider the options:

1. Put Promotions and Raises on Hold

Unless critical to your business, halt all promotions. If they are necessary from an operational continuity perspective, communicate to the promoted employee that they will experience a change of title and responsibilities, but they will not receive a salary increase until financial conditions improve.

And to save immediate payroll costs, place salary adjustments and merit-based increases on hold as well. If you have pay equity adjustments deemed critical, move forward with those. For non-sales staff, halt all incentive payments immediately. Communicate these changes to your employees, explaining that to save jobs, the business must be as lean as possible—therefore, bonuses must be sacrificed.

2. Consider Executive Compensation Adjustments

Similarly, businesses might want to consider reducing executive salaries by 15-25% or freezing all cash and equity bonus payments to these individuals. If your company is publicly traded and has a compensation committee—individuals from the board of directors who review and approve the compensation of executive officers—work with them to reevaluate your existing incentives and equity programs. In most cases, original 2020 projections are no longer realistic, and metrics must be revised so they align with current priorities and are sensitive to the pain being inflicted on shareholders by declining stock prices.

3. Reduce Employee Hours

Right now, many employees need flexibility. With schools and day care facilities closed, working parents are trying to balance child care with job responsibilities. Others might have to care for elderly family members who are sick or at-risk. Give employees the option to reduce their hours to four days a week or go part-time for the duration of the crisis, and adjust their pay accordingly. This way, a company can save on its payroll spend while still keeping workers employed.

4. If Necessary, Furlough Employees

As evidenced by the current unemployment rate in the U.S., layoffs are already underway. In certain industries like hospitality, entertainment and retail, COVID-19 has had an immediate and devastating impact on workers. Many were furloughed or laid off, but some companies have found ways to assist their dismissed workers.

When hotel cancellations spiked in March, hotel chains like Hilton, Hyatt and the Marriott all withdrew their 2020 outlook statements and began laying off employees. Hilton, however, furloughed many of its staff members and then took action: The chain established partnerships with companies like Amazon, CVS and Walgreens, which are struggling to meet consumer demands during COVID-19, and expedited the hiring of their displaced workers. What is usually a two-week application cycle has been reduced to a 24-hour process.

If furloughs or layoffs seem inevitable for your organization, seek out these types of partnerships. Establish direct channels to get your displaced workforce connected with any existing opportunities that will bridge a gap in employment.

5. Evaluate Your Company’s Top Performers

Careful research across different jobs and industries has highlighted a clear pattern: The payoff from employing top talent increases as a function of job complexity. So for jobs that are mildly complex, top employees outperform average employees by a median margin of about 85-100%. And for highly complex jobs, such as senior leadership roles, the contribution of top performers is more than double that of the average performer. Talented employees can also act as "force multipliers" and raise the performance bar for their colleagues. Simply adding a star performer to a team boosts the effectiveness of other team members by 5-15%.

Now more than ever, companies will need to locate and use their best employees. Through technology like talent management systems or via regular conversations with team leaders and managers, organizations should collect and track performance data on their workforce. So if and when a company needs to make workforce planning decisions, they know which workers to keep around to help them survive.

6. If Possible, Pay People Now

With rising unemployment rates and forecasts of economic downturn, employee anxiety levels are high, and they’re turning to their employers for support and stability. If possible, use this as an opportunity to make your employees feel valued and place them ahead of profits. Pay them as you normally would and, if financially viable, offer stipends to help with any expenses incurred due to COVID-19. Do this for as long as you can—it will make your employees feel valued and boost morale. To survive this unprecedented situation, companies must be strategic, but they also must support their greatest utility—their people.

Jeremy Spake is a principal of thought leadership & strategy at Cornerstone.

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