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Viewpoint
Published in the Rochester Business Journal
August 30, 2002
© 2002 HR Works, Inc.

HR strategies must shift with a tough economy
By Candace Walters

Over the last year and a half, U.S. employers have been forced to eliminate 1.7 million jobs, and more cuts are expected. Bankruptcies have become commonplace. The fragile economy remains vulnerable to slipping into another recession. Health care costs are escalating out of control, squeezing both employers and employees.

During difficult times, employers are challenged to approach human resource management differently than they did when the economy was booming. When stress and uncertainty reign, a well-managed organization distinguishes itself by focusing on HR efforts that will strengthen the company’s ability to withstand current economic conditions and emerge a strong competitor when times are better.

Every organization is approaching this challenge differently, but many strategies involve:

1. Communicating promptly and clearly. Layoffs and other cuts are never easy, and keeping employees in the dark only increases the anxiety. Timing is important; let employees know the state of the business as soon as possible after changes are made. Not sure yourself? It's OK to admit you don't know what the future holds. Employees don't expect guarantees, but they do want to know where they stand. Ask employees for participation and suggestions. People are more likely to support what they create.

And when the positive impact of those changes begins to emerge, be sure to let employees know that the situation is improving.

2. Retaining the best and releasing poor performers quickly. This rule holds when business is good, and doubly so when business is weak. In his autobiography, Jack Welch writes: "A star is worth 5 to 10 performers. It's no different in business than it is in football." No company in today's tough climate can afford to keep poor performers on the payroll, period.

3. Averting layoffs by proactively measuring HR effectiveness. Salaries, benefits and training can exceed 60 percent of a company's expenditures -- and can quickly get out of hand. Layoffs are embarassing and expensive for companies, and demoralizing for employees. Many could have been avoided with better tracking and planning. Dr. John Sullivan, head of the human resource program at San Francisco university, notes that companies, like people, don't get fat overnight.

Metrics that forecast fat in the headcount include:

• People Profit. How many people dollars are spent to generate one dollar of profit?
• Revenue per employee. How does this compare with prior years?
• ROI of HR expenditures. Does a careful cost-benefit analysis precede each purchase -- whether it be training, technology or other services?

4. Outsourcing all or part of your HR department. Outsourcing allows you to take a fixed cost and make it variable. It also allows you take the skills of one person and trade them for the skills of many professionals. Unless your business is human resource management, consider outsourcing this critical part of your organization.

5. Reducing expenses by adopting alternative pay approaches. Challenging circumstances require new strategies for tackling painful problems. For example, as an alternative to a layoff, try putting non-exempt employees on a four-day week, or cutting salaries by 10 percent for just one quarter. When considering these alternatives, make sure the impact starts at the top of the organization. Reduce executive compensation well before making changes that affect non-exempts.

Options for pay increases include lengthening the time between raises. Rather than review compensation once a year; change the time frame to every 18 months.

Another option is providing employees with lump-sum payments in lieu of salary increases and spreading those payments over two or three quarters. This controls salary budgets for the coming years, as base salaries do not rise.

6. Reining in benefit expenditures. Benefits are costly – adding 25 to 40 percent to a company’s payroll expenditures -- so it’s essential that yours produce the best results for the least amount spent.

Many smaller companies continue to pay 100 percent of their employees’ medical insurance premiums. As health-care costs rise in double-digit increments, few employers remain who can afford to absorb this burden.

If you haven’t already, consider shifting a portion of the cost of health premiums to your employees, perhaps scaling benefit contributions to salary levels. For example, employees earning more than $60,000 would pay 40 percent of the cost of health care, those earning $30,000 to $60,000 would pay 25 percent, and employees earning less than $30,000 would pay 15 percent.

Whatever the increased burden amounts to, the sting can be eased if the company adopts a Section 125 premium-only plan, allowing employees to pay their portion of medical and dental with pre-tax dollars. No company, even the smallest, should be without one.

Are any of your employees eligible to opt into health coverage elsewhere, through a spouse’s plan? If so, consider compensating them something less than what you’re paying for their health premiums.

Dental plans also offer cost-containment possibilities. Rather than allowing employees to change coverage every year, consider restricting those changes to once every two years – thereby discouraging employees from trading up only when they anticipate major dental expenses.

7. Respecting employees' time. As staffs grow leaner, the remaining employees frequently work longer hours. Employers need to be extremely respectful of how they ask people to spend their time. Eliminate bureaucratic processes that produce few or vague outcomes.

8. Setting high expectations. Make sure your company has adopted a performance culture that sets high expectations and recognizes and rewards only success. In sports, the best teams cultivate a laser focus on winning and being number one. Teams who are satisfied with being average never win championships in sports or in business.

9. Celebrating the victories - even the small ones. When times are hard, little things can make a difference. Boost employee morale by celebrating tangible improvements such as landing new clients or new contracts, or boosting profits or sales.

Let’s face it: The boom times are over, at least for a while. The sooner we accept that reality and revamp our HR strategies to reflect the new environment, the sooner we’ll put our companies on a path to weather the storm and emerge stronger when the economy bounces back, as it always does.

HR Works, Inc., is an HR management outsourcing and consulting firm serving more than 600 clients out of offices in Rochester, Buffalo and Philadelphia. HR Works provides part-time and interim HR managers, HR*Stars recruitment services, legally reviewed employee handbooks and supervisor manuals, employee benefit statements, affirmative action programs, compensation programs, training and more. HR Works also provides services through its allied offices in Syracuse and near Baltimore/Washington, D.C. To offer comments on this column, write walters@hrworks-inc.com.

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