Many companies were not designed to flourish in the face of today's ever-evolving challenges, and a significant number of them simply won't survive. The resilient few that have managed to weather the storm must proactively fortify themselves against future market turbulence. Regrettably, belt-tightening measures frequently affect employees' incomes. However, it's worth noting that some forward-thinking firms allocate crisis-management funds to safeguard their workers' compensation during these trying times.
Yet, for most businesses, without the deep pockets of industry giants like Amazon or Facebook, making temporary salary adjustments becomes a necessity to ensure that operational budgets remain lean to stave off the specter of layoffs and 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, work with them to reevaluate your existing incentives and equity programs. Metrics must be revised to align with current priorities and are sensitive to the pain inflicted on shareholders by declining stock prices.
3) Reduce employee hours
In the present-day workforce, flexibility is a pressing requirement. To address these evolving needs, consider offering employees the choice to reduce their workweek or transition to part-time status, with corresponding adjustments to their compensation. This approach not only allows companies to effectively manage their payroll expenses but also ensures the retention of valuable employees during difficult times.
4) If necessary, furlough employees
Companies facing economic challenges can opt for a proactive approach to safeguard their workforce without resorting to layoffs by implementing furloughs. During a furlough, employees are temporarily placed on unpaid leave but remain connected to the company, preserving their employment status and benefits. This strategy allows businesses to maintain their skilled and experienced workforce, ensuring they are ready to spring back into action when economic conditions improve.
Furloughs provide a win-win solution: companies can reduce their payroll expenses during tough times while employees retain their job security, making it a more compassionate and sustainable alternative to layoffs. Moreover, furloughed employees can utilize the time to upskill, recharge and stay engaged with their employer, fostering a sense of loyalty that can pay dividends in the long run.
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.
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