Broad Pros and Cons of Firing from Job or Pay Cutting during the time of Global Meltdown
Since last around a year, the American economy had been weakening due to souring food and oil prices and boosted by the sudden burst of the housing bubble. The slowdown of American economy had pushed this Super Power in a state of deep recession. This recession in US had badly shaken not only India but has squeezed the entire world.
This had led to a fall in demand for majority of goods and services, increase of inflation, rise of input costs and deep crunch of cash flow. The impact of US slowdown had been tremendous on the IT sector, whereas the energy & manufacturing sectors also are facing its dreadful effects. Mid sized IT companies got its maximum impact due to slowing demand for computer hardware, software & other electronic ware, while the bigger players also got some hitting.
To ease out the tremendous financial pressure, almost all industrial players have started viewing their costs with a microscope and future with a telescope and have started adopting the easiest way of cutting down their manpower thereby evolving another monster of unemployment.
Of course the organizations are not obliged to seek the opinion of their employees, as to what measures must be adopted to sustain their business operations especially under such tough times.
The workforce or the employees are the worst hit section being on the receiving end, left with no or very little choice in this scenario.
Let us deliberate on the perspective of the employers as well as that of the employees to navigate the present rough waters.
Let us put ourselves in the shoes of an employer coming across two options of taking short term measures & reap the quick results or going a step further & considering long term measures.
A) Short Term Measures available with the Employers: Majorities of the organizations take either of the following decision unilaterally:
1) Firing the Employees
2) Employee�s Pay Cutting
Let us apply a little thought to various Pros and Cons of both these options exercised by the employers.
1) Firing the Employees: This is the worst guillotine like but the easiest resort handy with the employer anxious to cut down the costs.
# Although it provides some economic relief to the employer by which he can tide over the immediate crisis. However long term ill effects of such a strategy can�t be ignored. It is always better for an employer to weigh the pros & cons of both the options in the broader perspective & decide suitable action plan favorable to the organization in the longer run.
# Even if you happen to decide to fire a fraction of the workforce, do not touch the 15 – 20% of your core employees, who happen to be instrumental in generating majority of revenue for the company in any form. Such core persons may be from Servicing, Marketing, Development, Quality Assurance, Supply Chain or any other key domain of the organization.
Try to keep such key persons satisfied, since these high performers can be lured away by any company, even when markets are in bad condition. However care need be taken that you don�t over invest in such people.
# Even if you decide to fire some of the people from the organization, give sufficient notice to the employee that from such and such / reasonable date, may be a month later or so, your services may not be viable for the organization. This would certainly provide some breathing room to the employee to settle down from the sudden shock otherwise. It is for certain that organization is not going to ruin due to a loss of small amount of salary paid to the employee during this notice period.
The act of firing of the employees at the blink of an eye, is extremely inhuman & far from the social ethics & needs to be avoided.
# Let us see, what the Indian Government says on job firing. Last year during the start of financial crisis all over, Mr. Manmohan Singh � Hon. Prime Minister had rightly anticipated troubles ahead & had expressed his grave concern towards gigantically rising pay packets in Indian companies these days. This time when there is deep trouble everywhere, Mr. Pranab Mukherjee � Hon. Union Finance Minister said on 21st Feb. 2009, “Don�t fire the staff, cut their pay”. He advised the companies, to go in for cutting down the pay of employees at all level rather than retrenching the employees.
Thus the advice of the Govt. of India appears like a boon to the employees surviving under the shadow of demon of Pink Slip. However, how much is the actual effect of such an advice on the organizations needs to be seen.
# Of course no employee will ever endorse the action of issuing pink slips by the employer, which can have devastating effects on the employee & his family. But the pink slipped employee does not have any choice, other than accepting it with a smile, may be an artificial one. There are several ways & means, a pink slipped employee can adopt for an alternative / gainful employment.
Several means available to Pink Slipped employees are discussed in the later section of this article.
2) Employee�s Pay Cutting: This is the less painful measure compared to pink slipping or outright firing an individual from his job. There are numerous ways an employer can ease out the financial burden of the organization by passing on a portion of it to his employees. Majority of the employees lucky enough to be in job shall share the similar views. However there would always exist some persons with differing opinion on this topic, on which one can have lengthy debate.
Various means by which an employer can tax his employees during crisis can be like:
1) Compulsory Pay Cutting:
# While pay cutting is an extremely bitter pill to swallow, still it is a better option than retrenchment.
# Compulsory pay cutting can be done across all levels – P to P (President to Peon). The principle of “More Pay � More tax” should ideally be applied here as well. This will help in providing great motivation to the employees who in turn shall be gladly willing to share the concerns of the organization.
# Flat or fixed % cut on the pay is certainly going to generate resentment among the employees in middle or lower income bracket.
# Employees unwilling to share the burden by pay cut even under an environment of transparency must not regret & should part ways with the organization.
2) Freezing of all Bonuses:
# Must again apply from P to P. Bonuses may be productivity linked / performance linked or any other.
# Payment of bonus to a particular class while taxing or even axing another one is discriminatory & going to be counter-productive.
3) Forced Leave or furlough or sabbatical:
# It is another innovative cost cutting measure without indulging in disruptive layoffs. It can provide some sort of economic breathing room to the employers. Employer can ask employees to have furloughs or sabbatical meaning thereby the employee stays at home for 1 / 2 days in a month or may be even more, with reduced or no pay.
# During the period of forced leave, the company can engage the employees on some fruitful social assignments fitting their corporate objectives.
# Many big IT companies of India have been reported to adopt this approach following many industries in other countries.
4) Shutdown Holidays:
Increased periods of shutdown holidays can save large amount of operational costs to the organization. At the same time, the employees get added motivation, since they time they get more time to spend with their families at the cost of no or a small cut in their pay packet.
5) Pay less than the Inflation:
Another way of decreasing the actual salary of an employee is by not increasing it or providing an increase, which happens to be less than the rate of inflation. This automatically becomes a reduction in pay.
B) Long Term Measures available with the Employees: The repercussions / benefits of long term measures can be seen over a period of time.
Few long term measures for the organizations are:
1) First of all, turn away from economic opportunism of short sighted measures like blindly following the other companies without having any solid plans for the future. Learn from the experience of organizations in many countries, which had hastily retrenched the talent just to re-staff after a short while during an upturn.
2) Have a holistic view of the existing & futuristic requirements of skilled personnel talent & try to improve the productivity of the present personnel.
3) Face the recession head on by aggressive marketing of the products or services through aggressive consumer & retailer promotions. Send an economical message to all, as to why it is beneficial to buy our company�s products.
4) Make a goal, which should not be mere survival during the ongoing tough time, rather it should be aimed at enhancing or at least maintaining the value of your company compared to your competitors.
5) Take suitable measures of generating adequate cash flow without cutting corners on marketing & other strategically important expenses, being the backbone of the company.
6) Improve the efficiency all across the organization by making it comparatively flat organization with reduced hierarchical levels.
7) Reengineer the entire supply chain process across the organization. Identify & eliminate NVA�s or Non Value Added activities all across the organization.
8) Prioritize the investments, which may be quite crucial for the company in the times to come. Defer the investments as far as possible & conserve cash for the future.
9) Freeze the internal spending. This could apply to freezing new recruitment, curtailing travel and third-party expenses on external training and hiring of consultants etc.
10) Keep investing in future by devising creative ways & means to retain the work force, especially the skilled ones and save the cost of training the new work force when the gloomy days of economy return back.
11) Thus the solution is to adopt a fine line among large scale pink slips on one hand & the likely demand for talent on the other. Such a demand could crop up soon, may be in next six months or even later; may be at a time when you won�t be truly ready to take off again.
Employee Perspective: This time let us put ourselves in the shoes of an employee working for an organization. Although with lesser number of choices compared to the employers, an employee needs to smartly plan his future & get prepared to face any eventuality.
Following strategies shall be helpful to the employees during the time of crisis.
A) For the Lucky ones already in a Job: The best mantra for tiding over the present critical time in your present company are:
1) The best strategy: The need of the hour for the majority of the persons is – Try to stick to the places where you are. Do more hard & smart work and improve your value for the organization.
At the same time keep your antenna high & options for other companies open to meet any sudden challenge.
2) Share the burden voluntarily: In case your company is not planning for any official pay cutting campaign, come forward & volunteer to shell out a portion of your pay for some period of crisis. This could help saving the jobs of many fellow colleagues. Consider that a 5 -10% less pay is far better for the individual as well as for the company as compared to a devastating retrenchment.
Try to accept the new reality i.e. keeping the job by all means may be with less money.
3) Improve your skills: Try to be a multi tasking / plug-n-play guy whose presence should matter to the company. With the development of such a caliber, you would create your own value, which shall be recognized everywhere even in the depressed market. Then the demon of pink slip shall stop bothering you.
B) For the Unlucky Pink Slipped Ones: There is absolutely no need of panic. Undoubtedly the situation is quite challenging, never commit the mistake of nurturing depression, thinking it to be the dead end of the road. Take it as a part of a cycle, which has come and shall go sooner or the later.
Make standby plans for the future & read my following article, published some time ago.
Tips to overcome the fear of Pink Slip-Job Firing due to Global Meltdown
I am sure that this article would help you in shaping a better future out of the current moments of crisis.
Best of luck Friends : )
I welcome suggestions & comments esteemed readers would like to add in this article.
An expert on R&D, Online Training and Publishing. He is M.Tech. (Honours) and is a part of the STG team since inception.