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Thursday, 4 June 2009

Take Your Business To The Gym – Managing Staff Costs

Even the most well run businesses will have to face the prospect of having to lose staff as a way to reduce ongoing costs. This is even more likely in businesses where salary costs represent a high percentage of overheads, typically this would be in service industries like IT, manned guarding and finance. Faced with this situation what options does a business have? Most likely, only two, making staff redundant or getting staff to accept a temporary reduction in salary. Even this limited choice is dependent on the employee profile of the business. The relevant parameters are the level of staff salaries, the length of service of the higher paid staff and the ease with which redundant staff could be replaced.

So taking an extreme position a manned guarding firm is likely to have no option but to go for staff redundancy, this is because the vast majority of staff will be low paid, many of whom will be at national (UK) minimum pay. You cannot, therefore, ask these members of staff to take a pay cut. It is also true to say that it would be relatively easy to recruit replacement staff when the upturn comes. An aeronautical engineering business, by contrast, will have very many highly paid staff and asking staff to accept a pay cut is the much preferred option. It also has the added benefit of keeping highly skilled staff within the business. This was a harsh lesson that we in the UK learned in the recession of the late 80's and early 90's where our manufacturing sector was decimated. The wholesale redundancies made in this sector resulted in highly skilled staff finding other work and consequently they were not available when the upswing came preventing those businesses left from taking advantage of increase orders because they were unable to re hire suitably skilled staff.

So how should a company consider when making this difficult decision? Firstly, it should be taken sooner rather than later, procrastination is the biggest killer of businesses I know. Secondly, the business must look at its mix of staff, the severity of the crisis facing it, the speed of implementation and their view on when the upturn will arrive. Salary reductions are quick to implement but there is a limit to how much you can reduce people's salary, this is especially true if you're a smaller business you couldn't, for example, ask staff to take a 50% pay cut, realistically the maximum is likely to be in the region of 20%. Thirdly, get detailed numbers on the cash flow implications of your decision as this will help them decide what is the best course of action. Fourthly, any decision needs to be couched in terms of what is the best way to save £'sX and not what can we save, as the latter course almost invariable leads to a watering down of actions because businesses always find reasons why they shouldn't make person A or B redundant.

This is one of a series of articles about dealing with the downturn and what you can do to get your business fitter to survive, whilst many of your competitors may fail. The idea of Taking Your Business to the Gym comes from the view that over the last 8-10 years things have relatively speaking been easy. Company liquidations have been at low levels both consumer and business to business markets have been strong and companies have had no real pressure to look at themselves and seek improvement. Many have but most have become a little complacent over optimistic and so flabby. This recession has through an assault course in the way and you've got to get fit quickly to make it through.

See more at www.exigent-uk.com/business%20restructure.html

Contact me at Laurence@exigent-uk.com

1 comment:

  1. Laurence,

    I had a similar problem to resolve with my last employer before I moved to Las Vegas, the business was comprised of a small staff and a single owner. My responsiblity was to come up with a solution to reducing payroll costs. I held a meeting and discussed the reduction plan but I felt it was important to include the staff in the decision-making process, in a large organization I don't beleive this type of decision would be possible, but empowering employees is a positive motivator. The end results were the staff would particiapte in job sharing reducing full-time positions to part-time positions (this strategy was used to limit layoffs during these difficult economic times ). Once business picks up the employees will resume their normal routine.