One Company Decides When to Say "When" in Next Phase of Flexible Downsizing

As follow-up to last week’s post, "One Year Later: Next Stage of Flexible Downsizing Post-Recession, Pre-Recovery," I interviewed Scott Jones*, a senior executive at a national architecture, engineering and construction company (he asked not be identified since many of the issues we discussed are not yet public knowledge within his organization). 

In the worst part of the crisis, Jones’ organization took a flexible approach to downsizing that reduced costs and minimized layoffs.  But a year later, the recovery across the firm’s businesses is uneven. And the pressure is building to restore salary and schedule concessions willingly made at the beginning of the downturn.  Here’s the story of how one company is navigating the next phase of its flexible response to the recession.

CY: Welcome. Talk more about your company’s flexible response to managing labor and operating costs since the downturn began.

SJ:  When the recession began to really affect our business about a year ago, we started by cutting the pay of all of our principals.  When that wasn’t enough, we made pay cuts in specific offices and business units that were struggling the most.  Then, about eight months ago we reduced pay by an average of 5-10% firm-wide.  In slower units, the pay cuts were deeper than 10% and we instituted some temporary layoffs (or furloughs) of varying lengths, but generally more than 30 days.

When we started the process of making the cuts, we really weren’t sure how long the need for sacrifice was going to last.  But there was a real sense that we are all in this together.  Even the people within offices and business units that continued to be busy were willing to cover those that weren’t as active in order to limit our need to lay people off. 

CY: What are you hearing and seeing now?

SJ: Well, we’re beginning to see that sense of shared sacrifice starting to strain.  Some of those busier individuals, groups and businesses are lobbying to have their pay and schedules restored to 100%.  We do have certain businesses that are benefiting from stimulus money and are very active.  And there are other businesses where, quite frankly, the momentum hasn’t come back as quickly as we’d hoped.  And it may not come back for years. 

I’m not sure what’s caused the shift in attitude.  Maybe people are struggling too much financially and can’t keep it up. 

CY:  I also think we are hearing rumblings in the media about signs of a recovery.  While things were obviously bad, sacrifice is understandable.  Now that the economy is showing signs that the recession is over, for some concessions are harder to justify.  How are you responding to these calls to return to business as usual?

SJ: We’re being as surgical and creative as possible.  For example, with the group that’s benefiting more directly from the stimulus money, we haven’t restored their salaries. But we are giving them additional hourly pay.  And we are offering as much additional bonus money as we can to offset what they’ve lost in salary reductions.  The problem is that we can only do so much.  We just don’t have the extra money to do more unless we make some hard choices elsewhere in other businesses and regions.

CY:  Do you see having to make some layoffs in the future?

SJ:  I’m not sure yet, but let’s just say that we are very seriously reading the tea leaves for next year.  If you’d asked me a couple of months ago if we’d be back where we were in 2007 any time soon, I would have said "no." But there has been more chatter in the market in terms of opportunity, but not concrete business.  Our line managers are arguing that they don’t want to lose people because if business does come through then they are in trouble.  I understand that, but we’ve been holding on for almost a year and we are going to have to make some potentially tough decisions.  Even if those business opportunities materialize, they won’t take us back to 2007 levels in 2009.  So some changes will undoubtedly be required.

CY:  Will those potential layoffs occur across the board or will they be targeted in specific areas and businesses?

SJ:  If we do decide we need to make cuts, they will be surgical.  Certain geographic regions have been harder hit.  We’ll pare back and take a defensive position in those markets.  Some businesses are doing better, but in others, the reality is that the business is not going to return.  

CY: So where are you right now?

SJ: We’re assessing the situation, reading the marketing, determining which areas might require some cuts.  I am really lobbying for us to get back to normal operating procedures in terms of pay and schedules as soon as possible. 

Next week:  How to Tips for Managing the Next Phase of Flexible Downsizing.   Let me know if you have any to add to the list…I would love to include them.

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