«The employees are most valuable assets» M. Armstrong
Nowadays Ukraine and the whole world face a new economic crisis caused by occurrence and spread of the coronavirus disease, and seek how to stop it.
Full or partial cessation of business of some enterprises, decrease in production volumes, reduction in sales of goods, reduced demand for certain services have significantly influenced the enterprises. Due to the changes in the income earned by the enterprises, a logical question arises as for the financial possibility to retain the existing staff. This issue is vitally important for the enterprises, which had to cease their activity during the quarantine.
Unfortunately, the owners frequently diminish the staff value in the event of a crisis. The scarcity of the financial resources, the constant tension caused by the threat of bankruptcy bring about the reappraisal of the employees’ value. We see a so-called change from the strategy of development towards the strategy of survival. The supervision over the employees’ actions and the effective use by them of their working hours leads in its turn to the decline in trust and motivation of the employees as well as to the declining employee loyalty. Right now, the owners face a serious task involving the development and introduction of an anti-crisis approach in human resource management.
The western science of anti-crisis management defines three main types of such management depending on the stages of a crisis:
- prevention management;
- salvation management;
- renewal management.
Considering the speed and magnitude of the ongoing crisis in Ukraine, it can be easily forecasted that small and medium businesses will have to combine two types of management at a time: the management of prevention and the management of salvation. At this point, the main task for the owners is to carry out all possible actions to avoid drastic measures toward the staff, in particular, to avoid the mass layoff.
The managerial decisions made in terms of a financial crisis and intended to reduce the staff often decline the loyalty of the rest of the staff. Therefore, an incompetent staff reduction, its drawbacks and mistakes will be taken by the staff as callousness of the management personnel, seriously eroding the trust of other employees. While doing some downsizing, many companies do not realize they deprive themselves of a resource, which is highly required to overcome the crisis and to resume the growth and development of the company in future. Thus, the main task of the owner at the stage of “survival” is to define and retain the key employees, as far as some reduction in staff will definitely occur.
To understand how to act during the crisis, the employer should carry out the financial due diligence of the enterprise and to forecast the future scenarios, to determine the strategy taking into account the crisis and the possibility to restructure the enterprise for a period of limitation of the main activity. These actions are intended to assess the company’s “financial cushion”.
Along with the abovementioned processes, it is required to plan the actions related to human resource management and implementation of the organizational changes.
In practice, a good method to avoid a mass layoff in the current crisis is to change the attitude towards the payment for labor, as it occurs quite frequently that during the crisis the employers analyze the existing employee compensation plan and find the overstated salaries and an imperfect system of bonus award. Let’s consider two main methods and ways to reduce the salary budget:
- putting down the personnel maintenance by cutting the standard working time;
- putting down the personnel maintenance by changing the employee compensation plan.
It should be noted, that the abovementioned methods fall under the definition «key employment terms», so their usage must be substantiated by production and labor management changes and the employees should be warned about such changes no less than two months in advance. Let’s take a detailed look at what is meant under the abovementioned changes.
By cutting the standard working time, we mean the reduction of the standard working time of the employees and establishing short working hours. The payment for the shorter working hours is made on the pro rata basis for the hours worked. Thus, the labor compensation fund can be decreased to the necessary size, making it possible to mathematically estimate for what amount of the employees the cutting of the standard working time is required and how many hours should be cut.
By changing the employee compensation plan, we mean the changes related to the salary review as well as the review of base salaries of the employees, amounts and approaches to bonus awards calculating and payroll accounting. The slowdown in the scope of work and the workload of the employees is quite predictable in the event of a crisis, decrease in production volumes and demand for services and goods, and incapability to carry out the activity. In this case, the change of the employee compensation plan should provide for the implementation of an hourly rate wage preserving the minimum wage. Thus, the employee will be interested in taking on a bigger piece of work and the employer will pay for the actual hours worked.
However, if the switch of the employees to an hourly pay is not possible or is quite costly, there remains a possibility to cut the wage rate of the employees. This change provides for the lowering of fixed salaries/labor rates of the employees, the procedure and the amount of bonus payments. Nevertheless, while lowering fixed salaries and labor rates of the employees it should be taken into consideration, that the employee’s salary (both base and extra ones) for the fulfilled standard working time can’t be lower than the minimum wage.
So, the employers who try to cope with the crisis without mass layoff will gain the following advantages:
- reaching their objective to reduce the salary budget
- retaining the staff
- minimization of labor conflicts with the employees
- rapid return to the initial efficiency without search and training of a new personnel after the end of the crisis.
Olha Nikulicheva, HR Consultant