Situation:  A company needs to adjust expenses to control costs. It’s largest expense item is payroll. They are evaluating three options to adjust staff costs to anticipated revenue. Alternative A – Cut everyone back to part-time. Alternative B – Cut a few employees, but keep retained employees busy. Alternative C – A balanced approach between these alternatives. From others’ experience, which is best? How do you make hard decisions on employees?

Advice from the CEOs:

• The unanimous response from the group – for employees, Alternative B is the most positive approach. Extended cutbacks in hours has been painful for all and led to grousing. Once staff were cut it helped retained employees to focus on their work.
• When it comes to vendors, use Alternative A – don’t pay everything that you want to pay, but pay what can be paid consistently and predictably. It is critical as this is done to make sure that promises are kept.
• When it has been necessary to make cuts – how has employee morale been maintained?
  • In the short term, those who remained have been happy to have a job. Longer term, companies have had to do more than this.
  • One option is to set quarterly revenue and expense targets. When gross or net margin targets have been exceeded, companies committed to share some of the excess with employees.
• Before making any decisions, have a meeting with employees and openly ask them what they’d like to see that will help to build company culture and enthusiasm.

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