Companies say they consider employee engagement levels when deciding on HR cost-cutting efforts, yet nearly half (47 percent) of HR executives think employee trust has declined because of the way their companies have already managed cost reductions. Further, 37 percent feel the way they’ve managed the economic downturn will make top talent more likely to leave once the economy improves.
Hewitt’s survey also found that many companies may only be considering cost-cutting strategies that have a significant impact on the majority of their workforces. For example, more than a quarter (28 percent) say they are contemplating organizational restructuring, and 25 percent are considering additional layoffs. Twenty-two percent may reduce or eliminate their employer 401(k) match.
Additionally, employers are also considering measures that may have a lower impact on workers such as offering early retirement packages (16 percent), alternative work arrangements (15 percent) or opportunities for job sharing and/or temporary assignments (10 percent).
"What makes this next wave of cost reductions even more difficult than the first is that the ‘low hanging’ fruit is already gone," said Joanne Dahm, practice leader of Hewitt’s North American Talent and Organization Consulting business. "Companies around the world are looking for the right combination of HR cost-cutting actions that maximize savings while minimizing the negative effects on the workforce. While high-impact actions like layoffs and 401(k) match suspensions may be necessary, many other strategies can produce similar results and help preserve employee morale and engagement. There’s no silver bullet answer—so the key is finding the right combination of trade-offs for each organization."
Hewitt’s research on past economic downturns shows that companies can come out of a crisis even stronger if they make smart decisions about which investments to keep intact to protect their capabilities. Hewitt believes there are five key guidelines employers should consider as they develop a strategy for HR cost reductions:
- Consider Alternatives Before Layoffs. Layoffs are one of the most common HR cost-cutting tactics during tough times, and they may be entirely necessary. However, workforce reductions have a significant impact on employee morale. Additionally, this step could end up costing the company if these skills are difficult to replace when the economy picks up.
- Understand Employee Preferences. Before cutting HR programs or benefits, organizations should understand which are the most meaningful to workers. Companies may find they can cut programs that most employees didn't value in the first place, and save a significant amount of money without hurting morale.
- Take Inventory of Global Programs. It’s important for global companies to evaluate whether HR programs and benefits outside their home countries are overly generous relative to the rest of the market. Without taking a global view, employees at company headquarters are likely to shoulder a greater burden of the cost-cutting efforts.
- Make Leaders Visible and Accessible. Senior leadership needs a set of consistent messages and a well thought out communication plan to explain the business realities and rationale for tough decisions—and leaders should communicate regularly in a variety of forums, both formal and informal.
- Encourage Open Communication. Creating an ongoing dialogue with employees at all levels is more important now than ever. Managers should have regular and informal conversations with employees to stay attuned to their concerns and raise red flags to senior leaders. Regular channels—like the corporate Intranet, town hall meetings and company newsletters—are easy ways to keep employees informed, involved and engaged, especially as the company works through tough issues. One of the worst things managers can do is retreat behind closed doors, leading employees to fear the worst.
