• How-to

Maybe it was a joke then, but for last couple of years, this was a serious question which most HR managers asked each other. At a time when there are uncertainties in the business, reducing labor cost becomes one of the primary KRAs for most HR managers. Many Indian and global companies have laid off thousands of employees during the recent recessionary period.

However, there are many who did not. There are some organizations that believe in the instinct of avoiding retrenchment not only because it is humane, but also because it’s undoubtedly a great business practice.

Retrenchment is the most undesirable option as it may leave an organization flat-footed when things are better off, as sometimes the severance pay becomes sky high, causes sudden shortage of staff, loss of institutional memory, and lowers loyalty among existing employees. That is the reason why many organizations across the world are taking a softer approach and looking out for different ways of reducing labor costs without retrenchment.

Following are few of the options that may be looked at before you actually consider labor retrenchment possibilities:

Freeze/delay or cut salary, sensibly
With the limited opportunities available in the market during crunch situations, this should be the first step for any HR manager. Though primarily smaller companies would prefer to cut salaries first, bigger companies may plan to delay or eliminate salary/bonus increases. Whatever is being decided, cut or freeze, everyone in the organization will have to share the pain.

However, it is important for the management to compensate the performers more. Eliminating bonus may also be a good idea. Getting continuous pay checks is more important.

Raise employees’ contributions in benefit plans
Once introduced, taking back the benefit program does not talk good about the business culture. After meeting the legal and statutory requirements, companies may look at sharing the cost of company sponsored benefits with the employees. This will have dual benefits. Employer cost on benefit will come down and the employees will also own up the benefits and ensure appropriate utilization.

Voluntary reduction of working hours
There will always be employees who would love to work a reduced schedule. Hence some employees may be asked to cut their schedules by one or two days per week. This will realize good savings. The 35-hour workweek has become a popular practice in many companies in Europe. Reductions in work hours and corresponding reductions in pay are preferred in many countries over retrenchments.

Cutting down temporary staff
Utilization of temporary staffing is mostly managed separately from the regular human resource budgets. One can save huge amount of money by cutting down temporary staff. Temporary staffing agencies charge a premium rate for each hour of work performed. While it can provide flexibility for the organization, it is often not an economic way to get work performed. Temporary workers are far less likely to be loyal to any company than the people who are on its payroll.

Reduce spending on training, travel
Hiring an external consultant and organizing outbound trainings is always a costly affair. At a time when budgets are cut, training of employees may not be stopped. However, alternative and economical ways of organizing trainings will certainly help reduce costs.

Forming of discussion groups for employees to meet and discuss latest developments, creating in-house training options by making use of in-house subject matter experts as mentors/trainers etc may be tried. Cross-training and redeployment of work force also may help companies increase teamwork and flexibility. People managers should encourage their team members to move from areas of low return to high growth areas.

Business travels, both domestic and international, also add up to a huge expense. Companies may also look at reducing and replacing travels with video conferences, internet chats, etc.

Restricting overtime
Restricting the overtime payments may also give an immediate cost saving to an organization. Introducing flexi work hours, working from home facilities may help companies in getting away from overtime payments. These two options will have a positive impact on the employees there by helping them maintain their work-life balance.

Organization improvement council
A council may be set up with a few senior members of the organization who can review and implement productivity suggestions that could not be considered otherwise. The team may also work on reviewing the spending to find out the areas to curtail cost or find alternatives. This team may also encourage employees to come up with innovative ideas and not limit the same only to marketing, R&D etc. The team will also focus on the processes and operations as only the human resources are not responsible for the downturn; hence all the processes also need to be re-looked into.

The after-effects of retrenchment are always dangerous for any organization. Hence it is advisable to have the cost saving methods implemented at the right time. Knowing the facts of the economy and performance of the companies around, employees would take these cost saving initiatives with a positive frame of mind. However, it is important that the leadership team comes forward and educates the employees on a continuous basis.

Management should involve employees in regularly adjusting operations to improve efficiency. Employees are to be made aware of the steps being taken so that the company keeps growing and they see a better future for themselves. When employees are asked to improve profit to defend their jobs, organizations see an unparalleled level of improvement in productivity. When the employees know the financial details of the company that till date only the senior management knew about, they will start taking on more responsibilities.

DEBADATTA BAXI is Manager, Total Rewards, at Wrigley India Pvt Ltd.

©Entrepreneur July 2010

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labor costs, retrenchment, save