Monday, March 2, 2009

Cut Salaries ~ Build Loyalty

Times are tough and it’s hard to escape bad news… everyday people are losing their jobs. According to the US Bureau of Labor Statistics over the past 12 months, the number of un-employed persons has increased by 4.1 million and the unemployment rate has risen by 2.7%!

According to a Watson Wyatt survey of almost 250 companies done in October 2008, 26% of US employers expect to make layoffs in the next 12 months. Other respondents said they would have hiring freezes and undertake company-wide restructuring (whatever that means). The survey indicated that 12% would have salary freezes and 4% would have salary reductions.

Clearly, in a business downturn, the easiest way for companies to reduce costs is to cut jobs. And I realize in certain circumstances there is no choice. When sales just aren’t there it is difficult to justify keeping people employed.

But I think layoffs should be the very last resort. In my opinion, everything should be done to preserve jobs by implementing salary freezes and salary reductions. It is easy to let people go. It is much harder to cut salaries.

I speak from experience… Rideau has grown over 30% annually for the last ten years. Our biggest challenge over the years has been balancing revenue growth with infrastructure growth. If you have revenue growth without the supporting infrastructure you have dissatisfied clients. Conversely, too much infrastructure results in poor financial results. At Rideau, we decided long ago that we would always err on the side of too much infrastructure. Twice this resulted in some hardship. Once in the early 90s the other in 2001. During these times, we met with our employees and explained the situation. We laid out our options… cut people or cut salaries. Both times we ended up cutting salaries.

Although my opinion clearly puts me in the minority, others are starting to look at this option as well…

According to the London Times Online 25,000 steel-workers at the steelmaker Corus offered to take a 10% pay cut to avoid the closure of a plant employing 1,000 people. Another company JCB, employs 4,000 workers and they voted to work fewer hours, which resulted in saving 350 jobs. In December, Japanese automaker Honda slashed its profit forecast for the fiscal year and announced that managers will take a 10% pay cut effective January 2009 but there will be no job cuts for full time workers.

I believe these companies will find out what Rideau did when we had salary cutbacks… Our employees appreciated and understood the situation. They supported the fact that we were trying to save and look to the future and save jobs.

And do you know what? Rideau benefited by having more loyal and productive employees who realized we were working as a team.

So I say in hard times, don’t cut jobs… cut salaries and build loyalty!