Optimizing employee costs: Five things to consider while managing employees
Mita Srinivasan
10x Industry

Optimizing employee costs: Five things to consider while managing employees

They say that what doesn’t kill you, makes you stronger. That is just as true for businesses. Every time there are ups and downs, these lessons help you cope better for what’s next. SME10X and UPS share some tips to effectively manage employees – and the costs associated with them.

Current economic conditions are forcing many companies to significantly reduce workforce operating costs. While this is often necessary to keep companies financially solvent during difficult times, if done poorly, it is just as likely to exacerbate an already difficult situation. Here are a few suggestions on how to manage these.

  1. Spending before people: Reducing your productive workforce is like cutting into the “muscle” that runs your company. It may do long-term damage to a company’s culture, knowledge base and morale. Instead, ask employees if they will make temporary concessions — like unpaid leave, salary reductions and shortened work schedules — rather than undergo layoffs.

  2. Optimize the team: Work with your managers to prioritize jobs, departments and operating units based on their impact to company revenue, the cost to maintain them, and the ability to maintain these functions with fewer staff. Next, review the capabilities of your employees to determine if they are optimally deployed to support these critical elements of your business.

  3. Rip the band aid: If you still need to make cuts, make them quickly, efficiently, effectively and fairly then move on. Get through the reductions as rapidly as possible and re-establish the company on stable financial footing. This will create an element of stability for the rest of the team. Reducing uncertainity helps employees’ morale thus increasing productivity.

  4. Consistency: Decisions about which employees to let go should be based on data and rigorous processes, starting with a thorough review of the company’s current operations and future business direction. Work closely with your human resources department to ensure you are not at risk of violating any laws or existing contracts. Once you determine the number and type of employees needed to support the business going forward, begin making workforce reductions based on the following three criteria:

  • Capabilities and Skills: Do a clear evaluation of the skills possessed by each employee, the role these skills can play relative to business operations and whether these skills can be easily replaced if this employee is let go.

  • Performance and Productivity: Keep the highest-performing employees who have demonstrated a strong commitment to the success of the organization.

  • Employee Cost: It may be better to lay off a small number of higher paid workers instead of large number of less expensive employees. Use structured-assessment tools and techniques to rank and categorize employees according to the criteria here.

  1. Communicate: If you let people go with little warning, inadequate explanation and little to no financial support, some of your best performers — usually the ones with the most alternative job opportunities — will begin looking around for other organizations that they feel provide a more stable, safer place of employment. Be clear about why decisions were made to reduce the workforce, what actions were taken prior to making these decisions, how the decisions were carried out and future plans going forward. The more you trust employees with the full picture of the company’s financial situation, the more they will feel empowered to help the company meet these challenges.

  2. Succession: Think about who will be responsible for handling the work that remains after employees leave. Define transition and succession plans to ensure minimal disruption of critical organizational functions following the reduction.

In his online article for UPS, Punit Renjen of Deloitte explains: “As we move into the recovery phase, resilient leaders will seize the opportunity to grow and change. Having built and integrated new attitudes, beliefs, agility and structures into their organizations, they’ll not just recover lost ground but catapult forward quickly.

Whatever steps you take, make sure you learn from earlier experiences since all companies go through ups and downs. Businesses that have been around for longer than 10 years have seen tough times before. There are lessons learnt every time that will leave you better prepared for the next time.

Also read: How leaders can create a new and better normal