There are times when employers need to take the tough ways, such as downsizing or layoffs, in order to save their company from collapsing. Downsizing is typically done by employers when they are faced with restructuring, resizing, mergers, relocating, and buyouts of the business. Layoffs are also common in times of financial crisis, like what’s happening during COVID-19 epidemic.
However, if employers are keen to keep those loyal and talented workers on board, there are some better alternatives than layoff or downsizing. Here they are:
Surveying 268 senior business and HR leaders, Melvin Scales found that 22 percent said they always offer redeployment before implementing employment downsizing, while 29 percent said that they sometimes do so. Many employers are also shifting underused staffers into customer-facing positions like sales to help boost revenue. For example, Vermont’s Rhino Foods, which makes the cookie dough for Ben & Jerry’s ice cream, sent its 15 factory workers to the nearby lip-balm manufacturer Autumn Harp for a week to help with a holiday rush. Rhino paid the employees and then invoiced Autumn Harp for the hours worked.
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The theory behind unpaid leaves, or furloughs, is that by sharing the pain of downturn more broadly among the workforce, such that an organisation can keep talented employees and win additional loyalty and position themselves better for recovery. Besides, furloughs are cheaper than paying severance costs. For example, in China, accounting giant Ernst & Young offered its 9,000 mainland and Hong Kong employees a chance to take one month of low- to unpaid leave to save operating costs amidst the economic downturn in 2009. About 19 percent of the firm’s auditors opted in, thereby reducing payroll costs by 17 percent.
Pay cut can be an alternative for companies to avoid downsizing employees while reducing their labour costs, thus preserving jobs. Yet, this alternative might have a negative impact as pay cuts could create deep emotional scars and damage the morale of employees. Low morale can lead to lower productivity, with the next effect that labour costs rise. Winnebago Industries, Inc. is one of many companies that has implemented pay cuts. Winnebago implemented a tiered salary cut for its CEOs in March 2009 due to a current recession in that year. Based on the WSJ report, CEOs of Winnebago Inc. took 20 percent pay cuts, and other senior executives took a 10 percent cut. The pay of all other salaried workers was reduced by 3 percent.
Alternatively, employers can implement pay cuts with incentives to minimise the negative effect. For instance, employers can encourage employees to unpaid sabbaticals of up to a year and allow employees to swap a portion of their salaries for stock options.
There are some layers to this alternative. The first level, or outer layer, is to freeze hiring and cut discretionary spending. The second level includes shifting many employees to four-day workweeks and beginning to eliminate temporary and contract workers. The third ring is to cut jobs, consolidate factories and freeze salaries. And the final right, which should be implemented when sales continue to fall, is to sell assets and cut pay, benefits and research-and-development spending.
Work-sharing is a state-based program offered in 18 states, including Austria, Belgium, Canada, France, Germany, the Netherlands, Switzerland, and a number of individual states in the United States. Work sharing refers to allowing employers to reduce work hours to apply to have unemployment benefits to replace part of employees’ lost pay. Rules and payouts vary, but typically companies must maintain health and retirement benefits and get approval from any unions or third-party involved.
Remote and telecommuting are now business necessities to stay competitive in today’s market. This is also a good option to cut some company expenditure, such as electricity and building cost. Remote or telework is also a good alternative to prevent layoffs. However, some concerns might arise within employers when implementing this strategy, including concern over the safety of company data, fear of lowered productivity, and sometimes, lack of trust in employees.
Read also: Tips for Managers to Manage Layoffs with Compassion