As Layoffs Spread, Innovative Alternatives May Soften the Blow

My take on this is you as HR professionals should push the envelope on being the leader in creative ways to save people rather than laying them off. This article may give you some insight for those who are not creative. As a former head of HR in a billion dollar company it was a mandate to be creative to save as many as possible in layoff situations.

Just how bad will the economy get? For employers facing tough decisions about layoffs, the question is far from rhetorical. If the current economic turmoil is contained sooner than expected, premature layoffs could be a disaster. If not enough employees are laid off and the recession continues, the company's bottom line could suffer. And in any scenario involving layoffs, morale among those employees remaining at the company is sure to plummet.

Some companies consider alternatives to layoffs, such as voluntary retirements or salary cuts, hiring freezes, reductions in hours, or the cancellation of business trips and/or costly perquisites. Even standard benefit packages and matching contributions to 401(k) plans might come under the microscope.

According to Wharton management professor Peter Cappelli, director of the Wharton Center for Human Resources, the use of creative layoff alternatives peaked in the 1980s but then fell into decline. Executives came to a general consensus that if salaries were cut by 10%, or hours were shaved from the workweek, the company's best people would disappear. The thinking was that the "most mobile" employees would be hired by competitors, Cappelli says.

But that prediction, he adds, doesn't hold up. "It is driven by the executives' view of the way things work, and the executives, frankly, think that everyone thinks like them. They see themselves as the kind of talent that is mobile." They also don't believe that employees would buy into the idea of doing something good on behalf of their colleagues [by accepting reduced wages or hours] because "they themselves wouldn't buy it." Once again, Cappelli adds, that perception "is probably wrong." The act of making sacrifices for fellow employees "might actually build some morale and knit the company together."

Besides, Cappelli says, if the economy stays the way it is or worsens, the concern that a company's top employees will leave is irrelevant, since no one else is hiring either. "If you have a choice between a 10% wage cut and laying off 10% of the work force, why on earth would you choose the latter?" he asks.

Cappelli suggests that it's worth thinking about what kind of problem a company is trying to solve. If there is a concern about what happens when business activity picks back up, for example, companies that hold on to their workers would be in much better shape than companies that have undergone large-scale layoffs.

Spreading the Pain

The costs of layoffs go beyond the morale problems they cause -- both for those laid off and those who keep their jobs. Unemployment insurance premiums spike. Depending on the company, there are severance packages to consider and outplacement services (costly in these days of bigger demand for them). Litigation is a not insignificant risk. Cappelli suggests that if a company can cut back without instituting layoffs, it should do so. "Then you don't have those start-up costs" once things are back on track.

On the other hand, there's nothing like a good economic downturn to get rid of dead wood. A sagging economy can be an opportune time for management to deal with performance problems by using the bluntest instrument possible, Cappelli says. Firing people is often difficult to execute, but an over-arching justification tends to lessen complications.

The subject of alternatives to layoffs is almost always seen from the point of view of the employer, he adds. It would be a rare employee who suggests his or her hours be cut. But executives can share the decision by asking for voluntary pay cuts in exchange for some sort of deferred compensation, such as shares of stock or extra vacation. Some U.S. cities coping with recession-driven budget crises have already opted to reduce salaries and hours. Atlanta Mayor Shirley Franklin recently said 4,600 city employees would see their hours cut by 10% because of a $60 million budget gap.

In the private sector, the conventional wisdom is that the smaller the company, the more apt owners are to work things out personally with workers. "We recently reduced hours in our department," says Ben Atkinson, director of risk management for Edison, N.J.-based People Link, a provider of software training, consulting, development and support. "My team proposed the idea, and each [of us] volunteered to reduce [his or her] number of work days. I have asked other managers across our enterprise to consider this approach."

Atkinson says the move has prevented major disruptions to projects, and retains the investment the company has made in training its employees. "This is not to say we won't consider layoffs," he adds. "But it depends on your economic prognosis. If we anticipate a recovery sooner, we are more likely to consider reduced hours. If we expect a long slog, layoffs may seem more appropriate."

"The really small companies are probably more willing to find alternatives," Cappelli suggests. "Relationships are much more personal. It's one thing for the CEO to call the HR person and say, 'Lay off 10% of the staff.' It's another thing for the person at the top to look the [laid-off employee] in the eye" and say he or she no longer has a job.

Small, privately held companies also do not have as much pressure to cut costs if the owner believes it is possible to ride out the storm. Conversely, in a publicly held company, even if a CEO is inclined to seek alternatives to layoffs, pressure from shareholders and Wall Street analysts to cut staff might be too great. "With bigger companies, there is a certain skill to laying people off," notes Cappelli. "It will be interesting to see in this recession how companies do it, because a lot of them have lost that skill."

In the past 20 years, staff cutbacks have more frequently included attractive incentives, according to Daniel O'Meara, a senior fellow at Wharton's Human Resources Center and an employment law attorney with Montgomery, McCracken, Walker & Rhoads in Philadelphia. In the 1990s, O'Meara saw more opportunities for voluntary retirement incentives. "It was more feasible with a defined benefit plan, and very feasible with over-funded pension plans. If [employers] could afford it now, it might be that anyone with 20 years of service and at least 55 [years old] would be treated as [if they have] 30 years [of service] and ... are 65."

These days, such options are less generous, he says, citing a particular hospital where buyout offers are more typical: one or two weeks of pay for each year of service. "No one who is happy in their job and doesn't have something lined up would leave for four or eight weeks of pay. But you might have people who were going to leave anyway, and see it as a great opportunity."

The other side of that coin is that some companies make such offers "only to show employees that they are basically good people, just before the involuntary layoffs come. Since the Depression, all these alternatives have been discussed -- to lay people off or share the pain," O'Meara says, recalling personal experiences as a young man growing up in western Pennsylvania, where he worked summers in a steel mill. "There, when things got slow, we all worked four days a week. That's [a case] where the union had the effect of making sure people held on to their jobs. A lot of this stuff has been around for a long time. These decisions have huge impacts on people and there are no easy solutions."

O'Meara has mixed emotions about unions in general, mentioning "pay compression," where an unskilled broom-sweeper makes perhaps 60% of what a skilled steelworker makes. But that "socialist preference" clearly had a positive impact when the situation went beyond cuts in hours and moved into layoffs. "I have seen people retire and [accept] these fairly modest offers. [They figure] that they are older and their kids are out of college, and they think, 'When I was younger and needed the job, I would have appreciated someone doing that for me,'" O'Meara recalls. "It doesn't happen often, but I saw it in the steel mill."

A new factor on the playing field of labor negotiations is pending legislation called the Employee Free Choice Act, pushed by the AFL-CIO and backed by many Democrats in Congress, including the President-elect. Passed by the U.S. House of Representatives in 2007 and eventually filibustered in the Senate, the act would require a union's certification by the National Labor Relations Board (NLRB) when a majority of employees has signed a card designating a union as its bargaining representative.

"The bill would make it much easier to organize employees," O'Meara says, which might make the case for alternatives to layoffs more pressing. At the same time it could possibly restrict options for employers. "You don't want to lower morale when [Congress] is about to pass a law making it easier to organize. [But] it would make anything innovative a little more difficult."

Avoiding Layoffs 'At All Costs'

"The economy has got us all watching very closely. Like anyone, we are trying to figure out where the bottom is," says Tim Roth, president of Megavolt, an agricultural machine re-manufacturer based in Springfield, Mo. "Agriculture has been relatively strong compared to other industries, but in June, we saw that in future months we would have some problems. We tried to figure out how to keep people and avoid layoffs at all costs."

Megavolt has two advantages over many other private companies. First, it is a joint venture with two other firms descended from International Harvester after a buyout 25 years ago. In some cases, this allows employees who get additional training and certification to temporarily move to other work places, as needed.

Second, the company moved in October to a "shared work program" of three 10-hour days a week as a way to cope with the downturn. While workers keep their jobs, the lost 10 hours each week is nonetheless enough for them to be eligible for state unemployment benefits in Missouri, where Megavolt is located. The Missouri program also does not restrict unemployment benefits for people who take on part-time jobs, Roth says. And within the shared work program, companies can soften the blow to people who are laid off. In that situation, the state stipulates that the employer give the volunteers a specific recall date -- generally, anywhere from one to six months out, according to Roth. The company also maintains health benefits for employees and defers their contribution to the premiums.

"It's one thing to have lost a job completely, but it's quite another to be able to look for work and know you have got something else behind you," Roth says. "It's a good program."

Cappelli says Missouri's program sounds promising as a model for other states. But it might be a moot point in the short term. Indiana officials just announced that they are running out of unemployment dollars and might have to increase the state tax that generates those funds. Currently, the first $7,000 of earned income is taxed for unemployment insurance, something Indiana may need to increase to offset its own residents' needs.

Other states, such as New York, have shared work programs similar to Missouri's, but the gap in flexibility from one state to another can be wide. At the moment, most state unemployment offices are passing on the news to out-of-work residents who have exhausted their benefits that recently passed legislation provides up to seven additional weeks of compensation, funded by the federal government.

In the end, companies need to balance what's best for their employees while making sure the company remains viable in tough times. Small companies might be able to maneuver more nimbly, Cappelli says, but innovation will suit the times and circumstances no matter what the size of the firm, public or private.

He cites Cisco Systems in 2001, after the tech bubble and before 9/11, as an example. Cisco allowed employees to take sabbaticals while they were paid one-third their salary. "The reason was that at one-third pay, you couldn't survive forever, but it was enough money that you wouldn't necessarily be looking for another job" in the meantime. Cisco saved both money and talent.

Roth maintains that solutions like the ones his company have come up with work well only if state and federal agencies leave the innovation to the companies. "We can have the greatest idea to do something, and if the state doesn't support us, we can't do it," Roth says. "We have to save jobs. We cannot let this country lose more jobs."

When the Going Gets Tough, the Tough Don't Skimp on Their Ad Budgets

I found this article and associated reading important for all key marketing people to review and digest. From an HR prospective practicioners need to support the business by ensuring certain dollars are not cut from the budget.

With corporate managers under enormous pressure to control costs and maintain liquidity in the current credit crisis, advertising budgets often appear to be a dispensable luxury in the struggle to survive. Executives who succumb to that temptation, however, put the long-term future of their companies at risk, according to Wharton faculty and advertising experts.

"The first reaction is to cut, cut, cut, and advertising is one of the first things to go," says Wharton marketing professor Peter Fader, adding that as companies slash advertising in a downturn, they leave empty space in consumers' minds for aggressive marketers to make strong inroads. Today's economy "provides an unusual opportunity to differentiate yourself and stand out from the crowd," says Fader, "but it takes a lot of courage and convincing to get senior management on board with that."

According to Wharton marketing professor Leonard Lodish, with demand slack for advertising services, the cost of these services goes down, making advertising expenditures all the more defensible in a bad business climate. "If your company has something to say that is relevant in this environment, it's going to be more efficient to say it now than to say it in better times," says Lodish.

Research shows that companies that consistently advertise even during recessions perform better in the long run. A McGraw-Hill Research study looking at 600 companies from 1980 to 1985 found that those businesses which chose to maintain or raise their level of advertising expenditures during the 1981 and 1982 recession had significantly higher sales after the economy recovered. Specifically, companies that advertised aggressively during the recession had sales 256% higher than those that did not continue to advertise.

For companies that do stay the course and continue to advertise into a recession or increase their promotional activities, the key is to craft messages that reflect the times and describe how their product or service benefits the consumer. For example, companies might be tempted to emphasize price in a recession, but that only works for companies like Costco and Walmart that are built around a core strategy of providing low prices year after year, says Lodish. He points to the current Walmart campaign, "Save Money. Live Better," as a successful approach to the recession.

Dean Jarrett, senior vice president of marketing at The Martin Group in Richmond, Va., which developed the Walmart ads, acknowledges the campaign began in 2007 before it was clear a harsh recession was building. "We can't claim we knew a recession was coming, but "Save Money. Live Better" is dead on-point with who they are and what they want to be."

Eileen Campbell, chief executive of the Millward Brown Group advertising firm in New York City, says that while companies should probably not dwell on the recession and scare consumers into hoarding their pennies under a mattress, certain products require a straight-up approach -- such as financial services. "If you are in the financial services category, to behave as you did a year ago is silly." At the same time, however, many consumers are weary of negativity generated by the recession and would be receptive to a more upbeat message, she adds. "If you can put a positive spin on how you can genuinely help without invoking doom and gloom, I think that's going to be more compelling."

In Control of Your Pushups

Wharton marketing professor Patti Williams cites Gold's Gym -- the Texas-based gym chain -- as an example of a company that has found a way to navigate the economic slump while promoting a product that might seem discretionary or self-indulgent in hard times. One television spot shows legs working a stair climber as words pop up across the screen changing from "First floor" to "12th floor" to "Kilimanjaro" to "Olympus." Finally the words, "The Corporate Ladder," appear.

"This is about being goal-oriented as opposed to a general fitness or vanity play," she says. "It links to the economy because people are less likely to be spending on flashy things and more likely to be thinking practically and pragmatically. Certainly people are going to be spending less in this downturn, but they will spend something."

Williams agrees that advertisers should approach the 'R-word' (recession) with extreme caution.
"Along with this economic downturn comes a lot of emotional response, such as anxiety. It is characterized by a sense that you lack control, that you don't know what's coming and you are at the whim of circumstance. To the extent that advertisers feel their clients or consumers are experiencing anxiety, ads should try to empower consumers and help them think of ways to be in control in a world where they feel out of control."

The Gold's Gym spots address this concern, she suggests. "'You can't control the economy but you can control how many pushups you do, and take control where you can, and we can help you.' That's a powerful message."

Value is another important message to build into marketing campaigns during a downturn, according to Williams. Many marketers design communications aimed at justifying the price they charge for goods and services, either by emphasizing a low price or touting the benefits the company can provide to buyers. "Advertisers will do both," she says. "Some are in a better position to talk about lower costs while others will have to focus on what you get for your money."

Luxury businesses should take a completely different approach, appealing more to emotion, Williams notes, emphasizing the need for some emotional release or comfort in difficult times. High-end advertisers will also attempt to emphasize long-term value -- such as suggesting that a watch is not just a purchase for today, but for years to come. "You can try to remind people that this is, hopefully, a temporary state of things and we should not be focusing on the immediate future but also longer-term."

David Sable, chief operating officer of Wunderman, a brand-building agency that is part of the global marketing firm, The WPP Group, advises advertisers in a downturn to rally to protect and preserve brand equity that has been nurtured for years, with continued investment in and support of branded products. "The worst thing you can do is cheap-out on products -- put less coffee in the cappuccino -- as many have in the past."

According to Sable, while price is important in a recession, the majority of price-driven consumers still factor in the importance of branding. Companies must maintain "good housekeeping" during a recession, such as product quality and good distribution systems, but he suggests that clear brand association and leadership comes through communication. "If you cut the communication, you have a major problem."

He urges marketers to make sure they understand the "elasticity" of their brand, which would be a gauge of how much -- or how little -- advertising is necessary to sustain sales. "It's not a science. There's a lot of art there," he acknowledges, "but you must be supporting your product."

He also warns that in today's networked, digital marketplace, consumer buzz about disappointments with a product can metastasize quickly and widely. "You must give people good things to talk about by continuing to have good products and communication." The biggest lesson is that recessions come and go, but "hopefully your brand is for life. It's forever. So you have to be careful how you react because the downturn is not going to be forever."

If companies cut deeply into advertising and communications in a down period, the cost to regain share of voice in the market once the economy turns around may cost four or five times as much as the cuts saved, he adds. "You must really keep a balance in times like this. Don't go dark when customers and consumers need you because they need you as much as you need them."

Matt Williams, a partner at The Martin Agency, says a downturn is a natural time to focus on core strategy. A recession, he says, can be a "problem disguised as an opportunity.... You can position the brand as an ally to consumers in tough times with product development or sponsorship programs so the consumer can say 'I see by its actions that this brand is on my side.' That will pay dividends not only during the recession but beyond."

When Life's (Not So) Good

According to Wharton marketing professor John Zhang, advertisers in all categories must be in tune with consumers in the current climate. For example, he notes that LG Electronics is backing off its "Life's Good" slogan. "That's not the mood people are in. If you do that, it will generate resentment. You need to fine-tune your message to be sensitive." In challenging times, marketers must also work harder to segment consumers with specific messages. "If, in the past, you used mass media, you probably want to be more targeted now to make sure the message gets to the right people."

Research indicates that combative advertising which targets competitors escalates during an economic downturn. "When the marketplace is shrinking, you tend to become a little more competitive in your tone," says Zhang, who cautions that this approach can backfire. "If you say your competitor is bad and your competitor says you are bad, ultimately the customer thinks both are probably good and bad. They tend to be indifferent. Even in a downturn, if you want to create loyal customers, you don't want to be overly competitive. You want to highlight what you do best and be sensitive to the needs of your customers rather than bashing the competition."

An economic slump may be a time to reconfigure the advertising mix between traditional media and digital or other outlets, depending on the product, brand positioning and overall corporate strategy, Zhang continues. "You don't have to put a huge amount of money in the marketplace," he says, adding that lower-cost marketing techniques -- such as banners, street signs or direct mailing -- might merit new attention. When times are flush, it is easy to pay a premium for more expensive established media.

The Ever-elusive Gold Standard

All forms of media can be successful even in a recession, although the impact of digital marketing might be easier to quantify and therefore able to withstand the close scrutiny of senior executives demanding justification for any spending while their operations are under recessionary pressures, says Lodish.

Fader points out that direct marketing and other kinds of interactive communications might be valuable but do not yet deliver easily quantifiable results. "Unfortunately, the industry is still in its early infancy. A lot of people talk about what we are capable of doing in measurability, but no one has established the gold standard yet. Maybe this forthcoming recession will be the chance to catalyze that and make it happen."

The current recession will offer an opportunity for marketers to provide integrated campaigns meshing traditional and digital media. Fader says that in the last downturn, in 2001, digital marketers were operating out of separate agencies, but today marketers are able to construct fully integrated campaigns. "We have been talking about integration for years, but it's been a much slower process" than expected. "I'm not sure the recession will accelerate that integration, but those who are well-integrated will start to see some of the benefits."

Your input and comments are appreciated.

What Are You Thankful For?

Today is a day of thanksgiving and all of us should be especially thankful for what we have.

We should also be thoughtful for those less fortunate in the world today who find it hard to make ends meet, loss of a loved one, entered into bankruptcy, loss of a job, or other less fortunate happenings.
Today is a day of thanksgiving and we should all embrace those around us, or those who we have not spoken to for some time. Happy Thanksgiving.