Salary Freeze or RIF? Another View

8 Feb

I recently responded to a question from an executive in the insurance industry about whether a salary freeze or a reduction-in-force was the best way to reduce costs while maintaining employee morale and engagement. I’d like to offer the perspective of someone who looks at this question primarily through the lens of my research and consulting experiences, which leads me to conclude it may have less to do with which choice and everything to do with how leaders going about it.

I spent 12 years with a global consulting firm that assisted employers with force reductions. I’ve seen that done extremely well, where both departing employees and those remaining are treated professionally and with dignity. The communication was open and honest, senior leadership was front and center to answer questions and get feedback, and there was a specific plan that was well coordinated that helped remaining employees move forward in a productive way. For those terminated employees there were decent benefits offered–severance payments, benefits continuation, preference for re-hiring, outplacement services– which sent a message that the leadership of the company truly cared about these folks and wanted to help their transition go as smoothly as possible. (For more information about outplacement services you might find this New York Times article of interest.) In those cases I’ve talked to all parties involved and heard very positive things about the employer in spite of the RIF, feelings that often led to employees wanting to return and solid productivity for those on-the-job.

On the other hand, I’ve witnessed horrible “RIF train wrecks”, where communication was terrible, rumors were rampant, senior leadership was hiding, and there was no plan to move the company forward confidently– disaster for everyone.

I think the same can be said for salary freezes. I’ve worked with companies where that has worked well, and others where the results are less than positive. I’m familiar with one company that has been frequently awarded a slot on the “Great Places to Work” list that Fortune magazine publishes every year, and stayed on the list one year when their business hit hard times and they were forced into both a salary and hiring freeze.

The common denominator for successful outcomes? Great leadership, of course, leadership that has built over time a positive, engaging culture. It’s been my experience that how a company will go about this is just as important as what they do, and effective senior leaders can make a big difference in determining whether a freeze or RIF is successful. If that leadership has developed a culture of trust and confidence they can more easily deal with many challenges such as a difficult decision such as this.

Your take-away from this rant? I won’t presume to tell any company what the best choice is from a financial perspective. But I can tell you that how you act, how you lead, how you communicate, how to vision-cast– all these things will make all the difference in the world regarding this any many other important issues in these difficult economic times.

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Start ups don’t have to worry about this human capital stuff, right? Wrong.

7 Feb

light-bulb

You’re a fledgling, but promising, start-up. The patents for your sassy new widget have been approved. Your carefully crafted business plan has attracted outside investment. You’ve never had to hire and manage a staff before, but how hard can that be– the heavy lifting of getting this business off the ground and on your way to the big IPO pay day is just a matter of time, right? If that’s what you’re thinking, I encourage you to reconsider your position– the success of your new venture may depend on it.

Mark Waltzoni has several outstanding posts on this question at his site Building Sustainable Ventures. One hits this question head on:

The human capital side of the investment equation has traditionally received less emphasis during the due dilligence process, except for quantative analysis of benefit plans, pension obligations, and salary costs.

I believe that determining the full value of any investment benefits from a review of the organization’s talent pipeline, ability to access external talent, potential flight risks; and leadership team gaps that could swiftly erode an organizations’ ability execute against their strategic objectives, and current human capital performance such as turnover rates, staffing metrics, employee engagement indicators, and who and when ot offer retention, development, or separation agreements.

I spoke to the Executive Director of a large angel investing organization recently and he told me that in his experience early stage companies rarely failed due to poor technology or financing, but rather a leadership team whose talent, knowledge, and execution gaps doomed it’s ability to scale to the next milestone.

In the course of reviewing business plans over the years I’ve seen too many founders ignore this advice– always to their detriment. I should note that the research database my colleague Leigh Branham and I are studying for our book Lucky To Work Here contains over 10,000 employers, a third of which are small businesses. Our studies again confirm that engaged employees make a difference in all enterprises– big and small, public and private, profit and non-profit.

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“Survivors Guilt”– Impacting Engagement & Productivity

7 Feb

There’s a very sobering article in Time Magazine about so-called “Survivors Guilt”, the feelings of those working at a company that just went through a layoff and are still working– they survived the RIF. The article describes this syndrome:

Losing your paycheck in a recession is certainly awful, and those who hold on to their jobs are no doubt better off than their fallen colleagues. But watching colleagues pack their things and go — and dealing with guilt that it wasn’t you, anxiety that you might be next, exhaustion from the extra work you must take on and even envy of those who get to leave such a sullen environment — that’s not much cause for celebration. “Companies use the word affected with people who lose their jobs — the implication being that the people who remain aren’t,” says Joel Brockner, a social psychologist and professor of management at Columbia Business School. “They’re very much affected.”

Here’s how it feels to be one of the lucky ones: “It’s depressing,” says a market researcher in New York City who recently watched an entire division of her company be jettisoned. “You walk into the office and it’s quiet, the entire atmosphere is different. When someone gets promoted you want to say, ‘That’s great,’ but then you realize they got the job because the two other people in that group got laid off; this person was cheaper. You start feeling evil. People say at least you have a job, you should be grateful. Well, I’m not sure how happy I am. And then I feel selfish about that.”

The terms psychologists toss around to describe these feelings include survivor’s guilt (why him and not me?), survivor’s envy (thinking you might be better off gone too) and emotional contagion (the tendency to pick up your laid-off colleagues’ feelings of gloom and desperation). These feelings are with us in every recession, but as layoffs spread to more industries, people in all walks of life are increasingly experiencing them.

Fellow blogger Robin Tucker at The Proper Angle offers excellent advice to assist survivors. Her counsel is similar to what Leigh Branham and I have seen in our work in Beating the Bear Market with Engaged Employees.

Consider:

  • What can we do to make sure that departed employees are treated with dignity, so that their transition is as smooth as possible?
  • How can we work to allow “surviving” employees the communication channels they need to deal with their own feelings about this event?
  • Can we train our managers to more effectively spot employees who are not dealing well with this change?

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Disabled Unemployment Rate

6 Feb

wheel-chair-escalator

I’d like to call your attention to a serious labor and social problem– the unemployment/underemployment of the disabled. The report published at Occupational Safety & Health Online gives the numbers:

The Labor Department’s Office of Disability Employment Policy released the first employment and unemployment data on Americans with disabilities this morning. This began a monthly data series that “will assist the nation in understanding how changing labor market conditions affect Americans with disabilities. Although it is widely believed that this group typically faces a higher rate of unemployment than individuals without disabilities, official estimates were not available until now,” the DOL news release said.

This morning’s release showed the unemployment rate for disabled Americans in January 2009, 13.2 percent, was 59 percent higher than the unemployment rate for non-disabled Americans in the same month, 8.3 percent.

“Now that so many Americans are suffering job losses, there is a tremendous amount of attention being paid to employment problems and solutions affecting the general population. Americans with disabilities typically experience similar employment difficulties, even when there is a robust economy. The economic downturn may just exacerbate their struggle. These data will go far toward efforts to increase the employment of people with disabilities,” John Davey, deputy assistant secretary for ODEP, said in the release today.

Are we missing an opportunity to hire people who are ready and able to work? As  the category of this blog post admonishes: Disability Isn’t Inability.

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Can’t Ya Just Feel Their Engagement?

6 Feb
Boy, here’s the look of three young people that are just thrilled to be working!
I know the photo is a bit dramatic, but it does raise an important issue, that being the level of employee engagement of the younger generation. After careful statistical analysis of over 300,000 employee engagement surveys we can report that employee engagement does vary by age. In fact, our studies clearly show that older employees are generally more engaged than younger employees. There are, of course, exceptions to this statement, but the general rule holds true.
Is this the fault of the younger generation? Are they simply not as motivated as Boomers like me? I think not. I believe the responsibility for those gaps lies, in great part, at the feet of management. Many organizations have yet to figure out how to more effectively engage younger workers. I’m convinced this  most recent generation to join the workforce is very motivated– we just need to figure out how we can motivate them when they come to work. Remember, engagement is what leaders do to create an environment that is conducive to:
  • people feeling energized for what they do,
  • makes them want to go the extra mile, and
  • keeps them from looking for other employment.

Employee engagement, then, is something we as leaders can largely control. It is our charge to create the conditions necessary to engage all employees, young and old alike– even more important now as we face this difficult economic times.

 (This is the first in a series I am calling “Funny Photos”. Our topic will remain earnest, but the photo, I hope, will bring a smile. We can and should take this work seriously, but we don’t have to always take ourselves seriously, right? Enjoy your weekend.)

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The ROI of Employee Engagement

5 Feb
Yet another study showing that more engaged employers enjoy financial rewards was reported by the web site Knowledge @ Wharton. The paper, which is available to download, reports:

In a paper titled, “Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices,” (Wharton finance professor Alex) Edmans examines the stock returns of companies with high employee satisfaction and compares them to various benchmarks — the broader market, peer firms in the same industry, and companies with similar characteristics. His research indicates that firms cited as good places to work earn returns that are more than double those of the overall market.

Companies on Fortune magazine’s annual list of the “100 Best Companies to Work for in America” between 1998 and 2005 returned 14% per year, compared to 6% a year for the overall market, according to Edmans. The results also hold up using an earlier version of the survey that dates back to 1984. “One might think this is an obvious relationship — that you don’t need to do a study showing that if workers are happy, the company performs better. But actually, it’s not that obvious,” says Edmans. “Traditional management theory treats workers like any other input — get as much out of them as possible and pay them as little as you can get away with.”

This study corroborates our own research, as well as twenty-seven other studies we’ve collected over the years for our book Lucky To Work Here. If you would like a copy of a bibliography of those studies, please email at markhirschfeld@gmail.com— I’d be happy to send it to you.

The evidence is now clear– there is a business imperative to creating a more engaged workplaces. Let’s get to work!

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An Outcome Of The Economic Crisis

5 Feb

An article in the New York Times points to one clear symptom of employee engagement in the midst of this economic crisis– an increase in contact with employee assistance programs. The article, in part, states:

A widely available but often ignored corporate perk — the employee assistance program — can help workers who are suddenly facing a layoff, as well as those who worry that the same fate will befall them.

E.A.P.’s, which generally are managed by counseling firms or divisions of health insurance providers, offer advice on family relationships, drug and alcohol problems and dollars-and-cents issues, among other matters. With so many people out of work because of the recession, and signs of economic rebound hard to glimpse, the number of calls to the programs has skyrocketed.

Aetna Behavioral Health, part of Aetna Inc., the health insurer, said it saw a 60 percent increase in program members seeking help in the third quarter of 2008, versus the same period of 2007. Financial stress was the main source of the increase, Aetna said.

“We’re hearing more and more people raising financial and economic concerns,” said Dennis Derr, who runs the firm’s E.A.P.’s. “We started noticing that trend in the middle of last year, with people saying they’re in debt or concerned about being laid off.”

In our research study, Beating the Bear Market with Engaged Employees , we identify five differentiators that can make a positive impact on employee engagement in the midst of these tough times, and taking care of employees is front and center.

Consider:

  • Do you have an EAP program?
  • If so, is the program well publicized?
  • Can you help managers to encourage the use of services such as EAP?

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“He’s Been Sleeping On The Job Longer”– Unfair Pay

5 Feb

sleeping-dog

I just had a conversation with a client who was trying to address a high level of unfavorable ratings in their annual engagement survey to employee perceptions of “fair pay”. It’s a question that frequently does poorly, but the scores were particularly low here.

There are instances when perceptions of “fair pay” relate to external equity– employees are upset that others down the street at another company are making more than they do in similar jobs. But more often I’ve seen more significant problems with internal equity– that employees see marked differences in pay amongst peers. Often the perception of internal inequity can be summed up by a comment I heard from an employee:

That guy in our department has been around forever. I’m just getting started here, but I’m working twice as hard as he is. He’s been sleeping on the job for a long time, but because he has more tenure he’s paid more. That’s just not fair.

No, it’s not fair. More importantly, that perception led this employee, and many others, to report lower levels of engagement in many other areas. Said another way, employee perceptions of unfair pay impact overall employee engagement.

Consider:

  • Are there areas where internal inequity in compensation exist in your place of work?
  • In some cases, are poor performers getting paid more just becuase they have more tenure and, if so, what can be done to address their lack of performance?

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Business Advice From Those Who Have Survived Tough Times

3 Feb
In yesterday’s New York Times author Paul B. Brown presents advice from business owners who have survived past economic downturns. Here’s the counsel from one leader:

1. Continue marketing. “Being consistently visible demonstrates to both existing and potential customers that you are stable and in for the long haul.”

2. “Take advantage of the trickle-down effect in hiring great talent. Unfortunately, there are many people out of work right now. But the larger talent pool means opportunities for small businesses that do have the means to bring on new employees.”

3. Give back to the community. It is “a great way to keep employee morale strong during hard times, stay busy when business is slow, and get your name out by donating time. Aside from all that, it’s the right thing to do.”

In an earlier post about a potential Silver Lining I mentioned that from a talent perspective this could be a time when companies will be able to hire individuals who may not have been on the market a few months ago. I encourage any leader to consider the advice in this column– there will be opportunities out there for those who are willing to see them.

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Engaged Employees Less Worried About Personal Financial Future

3 Feb
A study out today, published by CNNMoney.Com reports that employees who are more enagaed at work have generally less anxiety about their own financial future. The authors of the report state:
This research certainly complements the studies we’ve been conducting of employee engagement in the midst of this economic crisis. Employees are very concerned, which is showing in their overall engagement.

In a survey of employee opinions, the Kenexa Research Institute (KRI) investigated the extent to which the current economic conditions cause workers to worry about their personal financial well-being as well as intentions to delay or cancel anticipated purchases. Additionally, workers in the United States were asked about their feelings toward organizational leadership and the effectiveness of business processes at work.

Results indicate employees’ feelings about their own personal financial well-being are strongly influenced by their experiences at work. Not surprisingly, an important factor influencing how employees feel about work is how effectively they feel their organizations are being led.

Workers who have unfavorable views of their leadership are much more likely to report being worried about their personal financial situation, which was found to be strongly related to stated purchasing intentions. Specifically, employees who rate their leadership unfavorably are much more likely to express concern regarding their personal financial situation compared to those who have favorable views of their leadership’s effectiveness. In addition, those who rate their leadership unfavorably are twice as likely to state that they are delaying current purchases.

This certainly complements the research we’ve conducted about employee engagement in the midst of these difficult economic times. Please review our report Beating the Bear Market with Engaged Employees

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