Recession and redundancies, two big ‘R’ words on many people’s lips. But when times get tough and employers have to tighten their belts, is redundancy the only options, or indeed the best option…….
Thinking about one of my clients, things were financially bad, very bad – so bad that if immediate action was not taken to cut costs, the business would have folded within three months. 15 years of hard work, dedication and achievement down the pan in the period of least than 12 months – unimaginable, but a harsh reality.
So what were the options?
Firstly, move the offices to a smaller, less a prestigious location – a real possibility until the costs were really assessed, with 6 month break clause fees, the cost of finding new premises, the cost of having them made fit for purpose, the cost of informing everyone of the move and updating all company paper, cards, marketing etc…… the savings required would take far too long to achieve, if in fact they could be achieved at all.
And so, cut marketing spend…… this was done to some degree, but then how do you generate new business to keep the business going – not the ideal solution and again not going to achieve the results needed in the timescale required.
So then lets look at the biggest cost – oh yes, people – lets get rid of some of them and then we will make a ton of savings – right? WRONG.
The cost of redundancy was high due to the age and service of the employees, paying that out was not going to save money within three months. In addition, everyone in the company has an area of expertise and as with many small companies there is not a lot of overlap, so by getting rid of one person, the company loses the ability to service those clients, lose the business and end up no better off than if they had kep the employee in the first place.
So what are the options?
The ideal solution is actually a combination of measures and the exact combination can be achieved by identifying exactly what the business needs now, what it might require in the future as business returns to ‘normal’ and what it can sustain in the interim.
By introduing a combination of the following measures the company achieved it’s aims:
- Reducing hours for some employees
- The 2 business owners took a 50% pay cut
- Reducing pay for all senior staff by 20%
- Reducing pay of 4 junior staff by 10%
- Placing one employee on a zero hours contract and using him to deliver to a specific client base as and when there was work in his area of expertise
- Stopping company pension contributions which was up to 10% depending on service
- Introduing a bonus pay system directly related to new clients and specific targets
A proper consultation process was entered into with all employees. They were given a very clear picture of the company’s financial situation, they were presented with the options and the company’s proposal and asked to respond with their thoughts but also with alternative ideas for cost savings.
The outcome was that all employees agreed to the proposed changes and were given reassurances that the situation would be reviewed every three months with a view to improving the terms and conditions as soon as feasible, even if it was in stages.
Retaining quality employees who have been loyal over the years, understand the company and their clients and have the skills and experience to consistently deliver to a high standard will play a vital role in the company’s ability to survive and then thrive into the future. The recession will not continue forever and companies have to focus on how they want to come out the other side.
Managing employees within the law and in a morally sensitive way is vital to company survival.