January 12, 2009

Tough Times—Tough Decisions

By Paul Bieber

Yes, you are going to reduce your workforce. Maybe you already have; maybe you may need to do more. My consulting partner, Stan Lane, and I had an interesting conversation about which is better: laying off 10% of the work force or keeping everybody and reducing everyone’s hours or wages by 10%. Here are parts of our conversation to help you decide which path best fits your business.

Some of the thoughts we agreed on:

If you feel that 15% or more of your labor dollars needs to be eliminated, go with actual layoffs, not reductions in wages or hours.

Check your employee manual or labor contract. That will usually explain the layoff procedure you must use. I hope that it gives you the right to lay off based on employee review results, rather than on strict seniority. (If you are on seniority, change this for the next edition of your employee manual, which should be ASAP.) Look at your reviews and layoff your weakest workers, the ones that haven’t learned more than one skill, or the ones that seem to miss the most amount of time. Again, be sure these occasions are well documented within your employee review system. (If you are not doing employee reviews, you are not going to have a successful glass company.)

Maybe you don’t even need a layoff, but you have the chance to clean house of your late-showers and quality-impaired workers. Even if you layoff the bottom 5%, wait two months and rehire, with the number of people unemployed in the US (over 7%), there are a lot of very good people looking for jobs. Trading up and improving your workforce should be a main topic for you to be undertaking right now.

Also, don’t implement a hiring freeze by formal announcement. Just stop hiring until a good applicant comes in the door. There are millions of people out of work and many of them are excellent employees. If you want to trade up, don’t be blocked by your own rules about hiring freezes.

So, Stan feels it is better to reduce wages and/or hours by 10%, rather than to lay off 10% of your workforce.

Stan’s points:

•Keep your entire workforce so when you get busy you can easily expand hours. You have your whole work force there without having to hire and train rookies.

•You maintain morale by keeping all people working.

•You don’t take the risk of laying off good people, who would go to your competitor.

•By spreading the pain across all workers, reducing wages by 5%, Stan feels all people will work harder to improve the company. If workers feel that the “other guy” will have to pay the piper with a layoff, they won’t work as hard.

My points are:

•You clean out the weak workers and when you go to rehire, plan on hiring better workers.

•Do the layoff and be done with it. You have 5% of the staff out, but the other 95% are there at full wages, working hard to avoid the next (hopefully not) layoff. In the ‘reduce wages plan’, 100% of the company is unhappy with wage cuts. In the layoff plan, 95% are happy they have their jobs.

•Just about every company, anywhere, can survive very well with a 5-10% staff cut. It will make you sharper to reduce by this amount.

Whichever plan you feel is right for you, there is no sense waiting. The economy is not going to turn positive for at least six months. Hoping that if you wait one more week, you won’t have to do anything is foolish.

Which ever you plan to do, plan to do it once. Do all layoffs or repricing of workers at one time. If you lay off five people today and next month five more, everyone will be wondering what’s next instead of doing glass work. Go as far as you feel you’ll need to cover your employment picture for at least six months.

On one hand, you will feel bad for the employees that you laid off or reduced their hours. On the other hand, if you don’t take action, you may be responsible to the entire work force if your company sinks.

These are not easy times to be an owner. Remember–this is what you signed up for by starting your business.