12 December 2008
Redundancy is not the only answer
Communicating alternatives to job cuts - part 1.
Many communicators will by now be familiar with communicating redundancies across the company. But is redundancy the best – or indeed the only – way your company can save costs?
Companies should be trying to take a long-term view and consider how redundancies today could affect their ability to recover tomorrow.
Media coverage of redundancies is now increasingly common, but so is news of alternatives to redundancy such as pay cuts. The BBC is continuing to cover news of proposed pay cuts at Corus, which union members have refused.
Pay cuts – an alternative to redundancies
Simone Wheeler, head of communications at CLSA spoke to the Hub recently about her firm’s proposed salary sacrifices.
Wheeler explains that senior staff were recently asked to participate in voluntary salary sacrifice, following a similar tactic in 2003 when staff agreed to participate in a similar program during the SARS outbreak. The outbreak caused a downturn in the Asian economy – the geographical area where CLSA’s staff are principally based.
Although people aren't asking each other directly if they've taken a cut, it does tend to come out in conversation.
But this time only a third of CLSA's employees are being asked to volunteer – senior managers. “We had a monthly salary benchmark and invited everyone from that benchmark and above to participate voluntarily,” Wheeler says.
Senior managers only targeted
Although people aren't asking each other directly if they've taken a cut, Wheeler says it does tend to come out in conversation. “That’s why we’ve not offered it across the company this time. We didn’t want more junior staff feeling compelled to participate.”
Senior managers at CLSA received a formal letter from HR signed by the chairman and CEO, which laid out the process. “If people didn’t want to participate, they didn’t have to respond,” Wheeler says.
The firm proposed salary reductions of 15%, 20% or 25%. Staff can earn back the salary they've sacrificed – plus a bonus – should the company achieve a 50% or better income to cost ratio taken on a month-by-month basis.
Possibility of bonus for taking a cut
People taking a 15% salary cut could get back their salary plus 7%. 20% salary sacrifice earns a salary return plus a 17% bonus, while a 25% cut would repay salary plus a 25% bonus.
The salary sacrifice program starts on January 01 2009 – a full year program until December with any payments made at the end of each quarter.
CLSA is a private company with 65% owned by Credit Agricole and CLSA staff owning 35% of the company’s shares. This means staff already have a large stake in the business and are mindful of how the company is running.
90% participation in voluntary pay cut
“Now they also have a stake in what it’s spending, as opposed to just what it’s making,” Wheeler says. “Suddenly everyone is contributing to cost cutting. It makes people aware of what the company is spending.”
So far, about 90% of the 500 CLSA managers approached have signed up. “Everyone knows what they’re contributing on a daily basis,” she says.
“They rely on each other and many staff have been with the company a long time. It’s like a big family business even though we’re an international organization.”
Alternatives to redundancy
“We support all moves an organization might make to minimize the number of redundancies,” says Gerwyn Davies (pictured, right), public policy adviser at the UK’s Chartered Institute of Personnel and Development (CIPD).
“The total cost of making an employee redundant is at least £16,000. That includes the cost of redundancy, which is at least £10,000 plus the cost of replacing that member of staff later will be around £6,000. The £16,000 total doesn’t include the cost of lost productivity and drop in morale that follows most redundancy programs.”
These costs are serious grounds for minimizing redundancies:
- Recruitment freeze: “Judging by what we’re seeing among our members, a recruitment freeze is one of the first devices used,” Davies says. “But as the economic background has worsened some are taking more radical measures such as short-time working – for example, a shorter working week.”
- Short time working: At Honda, some employees have taken a 3-month paid sabbatical. “The company appreciates the costs of making redundancies,” Davies explains. “It’s cheaper to keep staff on for 3 months, and pay them, than make them redundant. When the economy recovers, the company would have to employ new people in their place.”
- Pay freeze: “We’re starting to hear of a small number of organizations operating a pay freeze,” Davies says. “It will depend on how well the economy fares over the next 12 months whether we see more of that.”
- Salary sacrifice: Last month, Washington State University’s president announced his $100,000 pay cut to lower his pay to $625,000 in response to budget problems. The University of Washington president also declined a pay raise this year. Also in November, 2,500 UK JCB employees agreed to a 4-day week and a £50 a week pay sacrifice rather than see colleagues made redundant.
It’s cheaper to keep staff on for 3 months, and pay them, than make them redundant.
- Other alternatives: Debra De’Ath, director, at consulting firm PricewaterhouseCoopers suggests redundancy alternatives including flexible working, job share, seconding staff to other organizations or encouraging career breaks. She says companies can also save money in their provision of childcare, mobile phones, accommodation, travel, car parking, staff restaurants and company cars.
Communication during difficult times
Davies recognizes the difficulties of effective communication during a redundancy program. “Communication should be done by senior management to convey how the organization empathizes and sympathizers – not only with those made redundant – but also with those left behind.”
He says people must see the communication as objective and transparent – and the redundancy process as fair. “Employees need to understand the reasons behind any redundancy decision.”
Counseling and support
“Our [CIPD's] recent report on redundancy shows 75% of employers are offering counseling and support for those that have been made redundant,” Davies says. “I’m glad to say there’s a lot of good practice taking place.”
He'd like to see this support extended to those left behind, because productivity often dips as a result of low morale after a redundancy program.
Although communication should come from a senior management team member, Davies advises it be repeated by the line manager. In this way, the seriousness of the situation, and the concern shown by the employer, will come across powerfully to those directly and indirectly affected.
Should communicators be preparing for the other side of the current downturn? Davies is cautious about predictions because no one knows what exactly will happen. “The only thing you can say is that the organization is doing its best to avoid further redundancies. But it should stop short of saying what the future holds for 2009 and beyond.”
Have your say
What are your tips for communicating about redundancies – particularly asking staff to consider alternatives such as pay cuts or short time working? What do you see as the future for your communication function as the current downturn continues?
Recommended resources:
Interim appointments: the pros and cons
Q&A: What can we do to boost morale when a large number of employees are made redundant?
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