Desperate Times Call for Desperate Measures
The Covid-19 crisis has caught the world unawares, and across levels – individual, organization &r nation, private or government run – everyone has borne the brunt of this unprecedented situation. The silver lining is that our response to the situation is based on survival instinct, which is bringing together the best of innovation, co-operation, effort and speed.
The corporates world over are figuring out ways to deal with this crisis and learning fast to cope with its fall-out. Depending on the industry, business size, and location, the impact of the current situation has varied between mild and drastic for the majority of the companies.
One of the immediate reactions from the industry is to go for direct cost reduction especially employee wages apart from usual indirect cost saving exercises like travel and training cost reductions. In our observation, many organizations have already implemented ‘pay cut’ for middle-level and senior employees. In addition, some have implemented or contemplating with idea of ‘furloughs’ or ‘forced leaves’.
As the subject of organization efficiency and productivity interests us, we reached out to CHROs of about 25 organizations to better understand their responses to this situation. Beyond these two prevalent options, very few organizations have perhaps looked at other opportunities of wage-cost efficiency in both short-term and long-term. There are multiple potential triggers for this approach :
a) pressure from CEOs to act immediately to show immediate savings within quarterly performance.
b) benchmarking and keenness to follow trend based on competitors or market action.
c) lack of awareness or effort to explore other aspects (vs using tried and tested method).
In our research, almost 3/4th of the group of companies studied are focusing on short-term, immediate gains on wage costs. Though they recognize the importance of long-term wage efficiency and productivity, the ‘urgency’ of action is taking priority over ‘importance’. In a classical urgency-importance matrix, this is understandable in current situation. However, as situations starts improving, some of us may lose sight over ‘important’ aspect of long-term actions and get busy with other priorities.
Based on our analysis, following are our recommendations on short term and long term actions on cost containment:
The rush of going for pay-cuts and furloughs is avoidable. Just because many companies are following those methods, it doesn’t give a reason for others to follow it. The business outlook, retention aspects and brand value are some pointers to help decide the need.
Every organization is uniquely positioned in terms of its leadership philosophy, financial position, customer loyalties, employee value proposition etc so, the solution has to be uniquely designed and implemented for every organization.
There are multiple options for short-term savings (beyond pay-cut and furloughs) which can be explored. These options could be less painful to implement in many situations. Few examples – reduced working hours, deferment of variable pay, sabbaticals.
While short-term actions may be required by many organizations which are caught unaware by this pandemic, the solution lies in implementing long-term wage efficiency and productivity measures. This requires a much bigger holistic thought and requires an overall view on following :
– Workforce management – its composition, its mix – fixed vs contractual vs flexi/part-time vs gig/freelance
– Compensation mix – pay structure, pay mix – fixed vs variable pay, incentive designs, deferred payments, stock plans.
– Benefits structure – benefits types, structure, flexibility and getting value out of money spent
– Employability schemes – Effectively utilizing government schemes to train and augment workforce
We look forward to any comments and suggestions and sharing of best-practices. We are also happy to discuss with any professionals/organizations who may want to dig deeper into this discussion to explore optimum solutions for them.