Tuesday, December 1, 2009

Weathering The Storm

“It wasn’t you,” the part time Boston Globe reporter was told when she was recently laid off. She went on to write an article explaining why that phrase was no consolation and provided no comfort for her hard work and career with the newspaper. Yes, she understood the cost cutting reasons for the layoff, but ultimately it was a dehumanizing experience. She writes, “But I should have known better. When someone dumps you, has it ever, in the history of humankind, actually helped to be told ‘It wasn’t you’?” What makes this downturn in the economy such a difficult time for those laid off is that, “when people who know you and your work say your qualities and qualifications don’t matter in a major decision like a layoff, all that you are is somehow negated. You’re a number.” These are very good lessons for companies facing today’s hard times.

As employers face these financial difficulties they are forced to strategically think of ways to sustain their business, while looking to the future. Maintaining a strategic mindset is a critical part of this process. Employers could either view employees as Costs to be cut OR Assets to be conserved and developed. Depending on how your organization is thinking, the decisions made will differ dramatically. Here are a few considerations when faced with having to reduce employees:

According to a recent Society for Human Resource Management study, the average turnover rate for companies with no layoffs is 10.4%. A 5% reduction in force produces a 14.9% turnover rate and a 10% reduction in force produces a 15.5% turnover rate. As you can see, the impact of layoffs tends to trigger additional turnover.
* There are indirect costs associated with layoffs including heightened insecurity, reduced productivity and low morale.
* The tone and content of the terminations are critical. Leading with the heart and following with the head is the most effective. Show employees that you are compassionate, provide dignity, respect and adopt a “helping” relationship.
* Understanding the Survivor Syndrome will provide for an improved return to normal productivity levels. Fear and anxiety brings out the fight/flight response in individuals.

* Engaging camaraderie will bring people back to rational and logical problem solving, collegial environment allowing them to process the loss of their colleagues and move forward. * Lastly, re-igniting old company rituals or introducing new ones are a way to focus attention to the future. Give survivors a reason to stay and articulate your vision for the future will provide for successful teamwork through this difficult period.

Economical challenging times require creative solutions, especially among small and midsize employers who, despite budget constraints, are looking at cost-cutting measures, minimizing costs on retirement and health & benefit programs, and making effective decisions to help preserve key talent. After surveying a few companies, here are a few strategies that employers have introduced:

Inflexxion, located in Needham MA, is a health-related technology company that develops online interactive programs that reduce health-related risks, enhance clinical outcomes, and positively influence quality of care. This privately held company with over 87 employees was seeing revenues decrease due to the poor economic climate. As a result, they implemented cost management changes to reduce expenses. With these changes, Inflexxion is optimisitc that it will perform strongly in these challenging times.

To achieve these cost management changes, they formed an employee task force to evaluate what expenses should be cut. The five person task force did not include any senior management and met during lunch and after hours. The task force’s focus was to not disrupt the perception of Inflexxion as a great employer and to make sure that each implemented change made good business sense. Some of the changes included:
* Negotiating lower prices with some of their vendors;
* Eliminating free snacks in the kitchen, providing a boost for the vending supply company;
* Creating both cost and environmental awareness with employees by having everyone shut off lights, pitch in to water the office plants versus a plant company, and reduce unnecessary use of supplies;
* Temporarily stopping the employer match to the 401(k) plan with the intent to resume it in 2010;
* With the recent health insurance renewal, the company was faced with a 13% increase. The company decided to implement a high-deductible plan, and Inflexxion is covering the cost of the deductible. The increase to employees is marginal as a result.
* Eliminating one paid holiday. The task force is also considering a reduced four day work week in July;
* With salary reductions not an option, they chose to implement a hiring and salary freeze and lay off six employees;
* To boost morale, the group came up with great ideas. To start, they held a Wii bowling tournament in the office with the winner getting the prime parking space for a month. This has transformed into an after hours Wii bowling league.

National Braille Press (NBP), a non-profit organization, is weathering 2009 with a focus on managing to the budget. NBP is a Boston, MA braille printing and publishing company founded in 1927. The guiding purposes of NBP are to promote the literacy of blind children through Braille, and to provide access to information that empowers blind people to actively engage in work, family, and community affairs. As a non-profit company, they are seeing donations down with little options for staffing reductions, as their operations are already very tight. A key focus for them was to manage the endowment very carefully. With the downturn in the financial markets, regular reviews of fund performance with their investment committee were essential. As their employees saw many other employers reducing staff, they were asking “are our jobs safe?” To add fuel to their fears, an issue arose at the end of 2008 regarding the administration of their 403(b) plan which caused employees to feel their money was not safe either. To create a sense of stability, NBP responded immediately to the 403(b) plan issue and provided added employee communication through meetings and written communications. They have finalized their budget and believe that no future layoffs will be necessary as long as they can manage within their budget. They have also completed their benefits renewal. Expecting a 10% increase, they were able to reduce it to zero with some minor changes to employees out of pocket expenses. NBP is on a steady road for the remainder of 2009.

Dalton Electric Heating Co., Inc., located in Ipswich, MA, is weathering the storm by ensuring that no layoffs occur at the company. Dalton Electric is a privately held company founded in 1921 and manufactures industrial heaters. Dalton's Watt-Flex Cartridge Heaters and Diff-Therm Platen heaters are used throughout the world in manufacturing industries including aerospace, automotive, plastics, and composites. The company has worked closely with employees to reassure them that no layoffs will occur for as long as possible. They review financials each quarter and aggressively looked at cost-cutting measures for expenses. They have not made any benefit plan changes but froze salaries on 1/1/2009. Their business has slowed this year, but remains steady. The senior management is constantly reminding employees that their efforts are appreciated and have regular meetings to discuss the status of the company. Having a “being in this all together” approach has been well received by the employees and they are buying into making this all work. To date, Dalton has met their goal of no layoffs.
Beth Israel Deaconess Medical Center (BIDMC), a Boston MA hospital with over 6,300 employees was faced with cutting $20M from their budget at the beginning of 2009. Paul Levy, Chief Operating Officer, chose a unique strategy to achieve this goal. He has been writing on his blog for some time where he elicits feedback from employees and provides updates on the organization. He reached out to employees to help BIDMC achieve their budgetary reductions through his blog and received incredibly valuable and constructive solutions. It was estimated that 600 jobs were to be cut and the most important request from employees was to provide earnings protection to the lowest paid 900 employees. They requested that BIDMC find as many savings as possible so as to protect the lower wage earners from losing their jobs. This group would be financially impacted most significantly by any layoffs. Some cost savings measures implemented include:
· Temporary discontinuance of the employer match in the 401(k) plan.
· Suspension of earned time for six weeks, including no cash out option;
· Elimination of Blackberry and cell phone expense reimbursements;
· Elimination of the company barbeque;
· Executives voluntarily implemented pay reductions;
· Eliminated 70 positions based on structure changes and performance and suspended filling the 100 open positions.

By inviting employees to attend town meetings and collecting feedback from his blog, Paul Levy was able to achieve his goal for BIDMC. Through this process, employees appreciated feeling informed and invested in the future of the hospital.

In many ways this will be a milestone era for our country, companies and Human Resources. Roller coaster gas prices, a historic presidential election and unprecedented financial turmoil have created an atmosphere of uncertainty that most of us have never experienced. Through it all, we should remain strong and committed to providing our employees with honesty and compassion.