Alternatives to Layoffs — Part III

Strategy #3:  Reducing HR Costs

Many companies still haven’t transformed their HR area to reduce costs and improve support to the business.  Cost reductions of 25% are possible and the change in HR from administrative transaction processor to business partner significantly helps line managers.

  • Examine the possibility of self-insuring benefits such as dental or optical coverage.
  • Consolidate human resource or training functions in the field where appropriate.
  • Streamline HR processes and procedures such as the approval process for hiring, transfers, and performance appraisals.
  • Employee performance appraisals are generally more effective and less time-consuming if held on a quarterly or semi-annual basis, rather than annually.
  • Reduce duplicate paperwork, data input, and manuals.
  • Automate HR functions via internet applications, for example benefit enrollments.
  • Push more responsibility onto vendors.
  • Renegotiate vendor contracts.
  • Outsource selected HR functions such a payroll, benefits administration, training, or recruitment.
  • Restructure HR to provide new challenges and improve efficiencies through new HR staff performance goals and accountabilities.

For a copy of the full report click here.

Alternatives to Layoffs — Part II

Strategy #2:  Involve Employees in Cost Reduction

Many good ideas can come from employees because they see waste and inefficiency up close.  Companies such as Allied Chemical, Coca~Cola, General Electric, and General Foods have saved millions of dollars in energy, time and material costs by tapping employee input.

Ideas to Consider

  1. Have each department sit down with employees regularly to identify cost saving opportunities.
  2. Consider using a facilitator as many times employees don’t want to offend managers or supervisors.  For example, in one company I know, employees were uncomfortable speaking up about a time wasting project management process because the CEO created the process and was notoriously defensive about it.
  3. Choose to act on the opportunities that have the best combination of high payoff and low effort needed to implement.

What to focus on

  • Energy saving ideas
  • Operational inefficiencies
  • Duplication and overlap of effort
  • Scrap
  • Internal reports
  • Unnecessary meetings
  • Opportunities to share best practices
  • Options to eliminate positions when people leave or retire
  • Ways to reconfigure jobs to improve outcomes
  • Benchmarking to identify opportunities through better practices.

Next:  Strategy #3 — Reducing HR Costs

For a copy of the full report click here.

Alternatives to Layoffs: Part I

If your objective is to reduce people-related costs, layoffs are a fast way to go.  But many companies are looking for ways to reduce costs without losing good talent.  Here is a summary of our report on optional strategies that could be used with, or instead of, layoffs and are proven effective in reducing people-related costs.  For a copy of our full report including more cost reduction tips and techniques click here.

Strategy #1:  Alternatives to Layoffs

Laying off people means losing the investment you’ve made in hiring and training.  It will cost you more to replace the lost people when growth resumes — if you can find similar talent.  Additionally, layoffs can damage trust, respect and loyalty, as well as create high stress levels.  Sometimes they’re unavoidable, but consider these alternatives.

  1. Cut overtime.
  2. Cut or reduce travel, purchases of office supplies and equipment.
  3. Reduced workweek.  Nevada casinos recently instituted four-day workweeks as has Pella Windows, AK Steel, the City of Atlanta, and various hospitals.
  4. Eliminate or scale-down annual celebrations.  You can still celebrate achievements, but be consistent with the cost-reduction theme.
  5. Hiring freeze.
  6. Reduce/eliminate bonuses.
  7. Unpaid vacations.  Dell is offering employees up to five days without pay through January.  Honda is also offering voluntary unpaid vacations for U.S. employees.
  8. Voluntary or enforced furloughs.  The Seattle Times mandated a week of unpaid furlough for 500 workers amounting to $1 million in savings.
  9. Salary or wage freezes.
  10. Merit increase freezes.
  11. Pension cuts.
  12. Suspend 401(k) matches, as Kodak announced recently.
  13. Offer flexible work schedules to reduce hours.
  14. Cut pay by some percentage across the board.  Motorola recently implemented salary cuts.
  15. Schedule a work shutdown.  Cisco planned a four-day end of year shutdown. 
  16. Exit incentives to encourage voluntary quits (Watch out — you might lose the wrong people with this one.)
  17. Offer additional time off instead of pay increases.

Next:  Strategy #2 — Involve Employees in Cost Reduction

For a copy of the full report, click here.

Merit Pay Satisfies No One – and Upsets Many

First, some truths based on overwhelming research and evidence:

  1. Individual pay for performance does not improve organization performance.
  2. There is no evidence that performance appraisals improve performance.
  3. After three decades of research, there is no evidence that merit pay improves either individual employee performance or organization results.
  4. Individual employees do not trust their performance appraisal systems.

Furthermore, merit increases aren’t enough to motivate employees – but they will irritate them.  You’d have difficulty feeding a family of four at McDonald’s once a week on the additional pay a high performer gets over an average performer. 

Example:  Average 2009 merit increases are projected to be 3.6 to 3.8 percent, with the highest performers getting 5.6 to 6.0 percent.  For a $50,000 salary, the difference between the average and highest is 2.0 to 2.2 percent.  2.1% of $50,000 is $1050, or $20.19 per week before taxes.

Even when there is significant pay differentiation between weak and high performers, the cash difference isn’t much.  And many studies have shown that differentiation destroys engagement, breeds distrust, and undermines teamwork.

So, what does improve performance?

High performance companies align all the elements of strategy implementation with compensation.  This includes:

  1. A clear strategy effectively communicated through the organization so people understand their roles.
  2. An organizational structure and processes that enable information, collaboration and decisions to flow in all directions.
  3. Co-workers who are competent, productive and positive.
  4. A culture of collaboration and high performance.
  5. AND rewards that reinforce the strategy and values.

Treating performance reviews and merit increases as annual administrative exercises puts the focus on administrative deliverables, instead of on strategy, values and business outcomes.

Performance management can be a powerful tool to align effort and improve performance.  But it will never achieve those results the way it is traditionally practiced.

(Bob Legge helps clients improve performance and return on people.  For more about this topic, go to

Five Keys to Improving Employee Engagement

There is an old joke about a CEO who was asked how many people worked in his company.  His answer:  “About half of them.”

It has the ring of truth.  According to studies, only 30% of employees are fully engaged in their jobs.  50% of employees are somewhat engaged.  And 20% are actively disengaged.

I’ve never seen a company with engaged employees and unhappy customers.  Engaged employees drive results, positively affect attitudes, and enable a company to outperform its competitors.  They drive customer satisfaction, product and service quality, and revenue growth.  When Herb Kelleher retired as Chairman of Southwest Airlines last year, he said, “You have to treat your employees like customers.  When you treat them right, then they will treat your outside customers right.  That has been a pwerful competitive weapon for us.”

The five things you need to know about improving employee engagement:

1.  Engaged employees feel valued.  No matter how well a person fits the job, or understands the business, he or she also needs to feel valued to be engaged.

2.  Leadership is required.  Leaders who build commitment also build engagement.  Getting compliance through control is never the same thing as building commitment.

3.  Make sure HR practices reinforce engagement.  For example, if teamwork is important, is it reinforced with compensation plans, or do rewards focus on individual performance?

4.  Engaged employees are involved.  Employees value having input on decisions that affect them.

5.  Only let the right people into your culture.  If you hire the right people to begin with, you’re way ahead.

6.  Take your foot off the brake.  Find out what gets in the way of people getting their work done and do something about fixing it.

For an expanded article, see