Cutting Costs Without Cutting Engagement

By Richard Kern

Today, businesses everywhere are being asked to do more with less. In this environment, loyal, motivated employees and partners are critical to continued success and profitability. And companies know it: Hay Group’s recent Reward in a Downturn survey in just one of many showing that engagement is the top concern of employers right now.

“The discretionary effort of employees willing to ‘go the extra mile’ is even more critical for surviving the downturn and being positioned to grow once the environment is more favorable,” notes the report. “Similarly, organizations are concerned about retaining their high performers in order to get through the downturn and take full advantage of the upturn when it comes. However, employers can’t afford to pay more on reward.”

And that’s not the only place they’re cutting back. Here are the top five actions companies are taking to reduce costs:

• Training & development cuts – 46%
• Restructuring/Staff cuts – 42%
• Less contract labor – 40%
• Cutting bonuses – 38%
• Salary freezes – 36%

As you might imagine, budgets for incentive and reward programs are also under scrutiny these days, but there are a lot of ways to foster and maintain engagement that don’t cost a penny. The report rightly notes that employees work for more than money – “they work to get training and career development, to make a valuable contribution and because they enjoy contributing to a common vision and making their place of work a better place to be. Leading organizations understand this and are focusing on improving non-financial aspects of reward.” And concentrating on the non-financial aspects now will put you in a better position to implement more traditional incentive programs once things improve.

Preserve and Build

Hay Group experts suggest several ways to preserve – and even build – employee engagement while still making targeted cuts in the abovementioned areas. Here are a few that those of us in the engagement business should be focused on and familiar with:

• Do more with less. Look for creative ways to train at lower cost, including delivery through online, webinar and phone. Use internal mentoring, coaching and workshops to sustain a learning environment.
• Involve and engage. Restructuring immediately conjures up fears among employees – not surprisingly, the biggest reported employee concern voiced in this study was job security. To ensure employees see restructuring as more than a cleverly constructed plan to cut jobs, they need to be involved from the start. And keep them involved – regular, timely communication is paramount to update on progress, reinforce the vision and maintain performance levels.
• Handle with care. Contractors who are leaving should be handled with the same sensitivity and concern as regular employees. Treating anyone as “disposable” sends a very bad message to remaining employees about what might happen if their position also becomes expendable. And when things improve, you may well want your contractors back.
• Review and revise. Rather than changing existing compensation plans – where employee expectations have already been set – focus on redesigning bonuses to better drive performance. If the potential to earn incentives is reduced, then employees need to be kept informed and understand the solid financial realities behind such a decision.
• Consider other possibilities. Rather than cutting incentives entirely, consider how you might defer or phase the pay out of incentives. Are there tradeoffs to be made or non-cash alternatives to recognizing employee performance?
• Communicate, communicate, communicate. Salary has a strong emotional connection, as well as an immediate practical relevance, for employees. And while most will agree that a salary freeze is preferable to job cuts, the potential impact on engagement is strong. Salary freezes also make employees acutely conscious of the overall health and direction of the business, and in the absence of information, rumor will run rampant. Senior executives and line managers need to update employees on developments regularly and promptly.

And Finally…

Aside from the specific suggestions outlined above:

• Recognize success. Look for alternative means of recognizing success and talent when promotions aren’t possible. Always provide personal recognition for specific achievements and ensure this is part of the organization’s culture.
• Understand what employees value. Engage your workforce in possible alternatives to the existing benefit package and determine what different employee groups value most. Consider whether the demographics of the workforce mean you need a more flexible benefits package to meet differing employee needs and still keep costs down.
• At a time when organizations are trying to do more with less, it’s important to have a total reward strategy that recognizes success, helps retain high performers and is a positive force for employee engagement.
• Don’t overlook the simple things. A personal “thank you and well done” for specific achievements goes a long way toward boosting employee morale.

Portions excerpted from ‘Cutting Costs – Without Cutting Engagement’ by Hay Group. ©2009. For a copy of the full, 24-page report, Reward in a Downturn. Go to www.haygroup.com and click on ‘Download Center.’

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