New Work+Life Flex Normal by Cali Yost
March 5, 2009
08:04 am | 0 recommendations | 2 comments
(Tune in to Public Radio's The Takeaway on Monday morning 3/9 between 6:00-6:30 am in NYC, I will be talking about presenting a flex plan to your employer if you think layoffs are coming.)
Is a manager who pursues flexible alternatives to layoffs exercising his or her fiduciary responsibility to act in the best interest shareholders? This is an important question because it gets at the core of what drives the decision-making that leads to job cuts as the primary way to control labor costs in the recession (Update: quote from today's NYTimes, "With the economy weakening, chief executives want Wall Street to see them as tough cost-cutters who are not afraid to lay off workers.")
Shareholder profit is indeed a manager’s fiduciary responsibility in a publicly-traded company. As a commenter noted on CV Harquail’s Authentic Organizations blog,
“When managers go beyond the business case for alternatives to layoffs, they sacrifice shareholder profits for the greater good. For many this proposal is a non-starter because it is inconsistent with managers’ fiduciary duties.”
Do flexible alternatives to layoffs in the form of reduced schedules and salaries, job sharing, furloughs/sabbaticals, and contract based employees, really sacrifice shareholder profits and therefore, challenge a manager’s fiduciary duty? You tell me…Let’s expand the cost/benefit analysis and look at it from three different perspectives—the individual company, the U.S. domestic economy, and the global economy.
The Individual Company
Part of what strikes me about the comment above is that it articulates the belief that, on some level, companies are islands unto themselves. And actions taken in the name of fiduciary responsibility to shareholders don’t have any impact beyond that isolated entity. Assume for a minute this is true, and let’s start by expanding a cost/benefit analysis of flexible downsizing within the individual company.
In my interview with Wharton's Dr. Peter Capelli (1/22/09 post), he compared a 5% across the board reduction in salary/schedule to a 5% layoff. Market analysts would primarily focus on direct costs, or hard dollars savings and expenses, when comparing these two options. And on a direct cost/savings basis, it could be argued that alternatives to layoffs do not uphold the fiduciary responsibility to shareholders, and job cuts do:
5% Layoff Savings: Salary and benefit savings
5% Layoff Expenses: Severance, legal costs, outplacement (one time, non-recurring costs)
5% Salary/Schedule Reduction Savings: Salary savings, no severance, legal costs, or outplacement
5% Salary/Schedule Reduction Expenses: Benefit expense (recurring)
According to a 2005 Market Innovators International, Inc’s article, The Effects of Employee Satisfaction on Company Financial Performance, “Unfortunately, many stock analysts, business pundits and other arbiters of ‘all things ROI’ tend to dismiss issues pertaining to human capital as the ‘soft stuff’ of business. Quite the contrary: the connection between employees and profits is a very real one.”
Okay, let’s add the “soft stuff” back into the analysis and see how the picture changes:
5% Layoff Savings: Salary and benefit savings
5% Layoff Expenses:
One time, non-recurring costs--Severance, legal costs, outplacement
Ongoing, indirect, “soft stuff” costs—increased legal liability, lower employee engagement, lost productivity, lost talent, compromised ability to respond when the economy recovers (see Ready for the Recovery?).
5% Salary/Schedule Reduction Savings: Salary savings; no legal liability; no severance, legal costs, or outplacement; sense of shared sacrifice; productivity, engagement maintained or increased; talent retained; ability to respond to recovery sustained.*
5% Salary/Schedule Cut Expenses: Benefit expense (recurring)
*Could also include simultaneous uses of the same work flexibility to reduce real estate costs, expand customer service hours, share resources more efficiently across organization, etc.
Now which option fulfills a manager’s fiduciary responsibility to shareholders? The case for alternatives that minimize job cuts gets stronger. The “softer stuff” such as morale, employee engagement, and productivity matters. How much?
I recently co-presented a “Cutting Labor Costs Beyond Layoffs” teleconference with Richard Axelrod of The Axelrod Group, Inc. for CCM. Among other points, he illustrated the importance of employee engagement on productivity and profits with an amazing mind map depicting the supporting research created by Joe Lafferty of Lifetree.co.uk. (click here for map on page 10 of presentation). The negative impact on employee engagement, motivation and productivity is one of the hidden costs of layoffs that offset direct cost savings.
The bottom line is that at the individual corporate level, using flexibility to minimize layoffs (again, some job cuts may be necessary) does maintain a manager’s fiduciary responsibility to shareholders if the analysis goes beyond the traditional, narrow focus on direct cost and savings.
The U.S. Domestic Economy
As we have seen with difficulties in the auto industry, AIG, Citigroup, and the collapse of Lehman
Brothers, the actions of one company do affect us all. The analysis above shows that alternatives to layoffs fulfill a manager’s fiduciary responsibility to shareholders, but it goes beyond that isolated entity, especially in the current economic crisis. The bottom line here is people who either don’t have a job or are afraid they won’t have a job, aren’t going to buy the product and/or service you are selling. And according to recent economic charts, few people are buying anything.
Let’s look at CV Harquail’s “7 Reasons Why Alternatives to Layoffs are not Patriotic” blog post:
1. Every employee who is not laid off is an employee who remains an active contributor to our national economy.
2. Every employee who is not laid off is another employee who can continue to pay taxes.
3. Every employee who is not laid off is an employee who will not need to receive unemployment
benefits
4. Every employee who is not laid off is an employee who can continue to believe in the American Dream.
5. Every employee who is not laid off is another employee who can contribute to your business, and through your business contribute to the larger economic recovery.
6. Every employee who is not laid off is another employee who will appreciate his or her importance to the organization, and to his or her coworkers. Another employee who will feel like part of the solution.
7. Every organization that chooses alternatives to layoffs demonstrates, in one way or another, that it has chosen to remain fully committed to its business. Every organization that chooses alternatives to layoffs demonstrates the ‘can do’ attitude that has built and will rebuild this country.
The New York Times published a poignant article this past weekend about the 5,000+ out-of-work, baby boomer, white collar professionals who attended a career fair planned for 2,000. Think of how different their individual, and our collective, realities would be if at least some of their employers had instituted furloughs, and/or cut salaries and schedules to reduce labor costs.
Layoffs, whether they happen to you or someone else, impact consumer confidence, which in turn reduces the amount of goods and services purchased, which further weakens the economy—and the “paradox of thrift” spiral continues. If managers reduce layoffs by pursuing flexible alternatives, they are fulfilling their shareholder fiduciary responsibility by doing their part to boost confidence, which ultimately allows their businesses to sell more.
As Barry Diller, CEO of IAC, said in a recent interview with Andrew Sorkin on PBS’s “It’s the Economy, NY,” :
“If a company is restructuring and laying people off because they are in terrible trouble, can’t meet bank debt, that’s one thing, but if healthy companies that don’t have structural issues and are not reorganizing and then literally, just to improve their earnings, cut (their workforce) by 5% to 10% across the board so that the quarter or year can look better…I think in this environment is just a terrible thing to do…You have to take it for what the nature of the company is and what the current status is. But if revenue is going to come back when the economy comes back, and everything else is fine—and in many cases this is really true—then simply to cut your workforce for the sole purpose of making your earnings greater in this particular year, or in the next year—when as we know, no one is really counting—I think it’s anti-social…”
The Global Economy
Last week, I posted “Flexible Downsizing—A Matter of Global Stability, Not Just an Interesting ‘Option.’” By using flexibility to manage labor costs and minimize layoffs, leaders are exercising their fiduciary responsibility to shareholders because the international community is following our lead, whether we like it or not. And right now they are following our lead with layoffs, which many believe is impacting global stability and security. Taking the lead to encourage a creative, more flexible approach to reducing labor costs is exercising your fiduciary responsibility to shareholders, because global instability and insecurity will affect your organizations ability to tap in to world markets.
So, what do you think? Given the analysis outlined above, is a manager who pursues alternatives to layoffs ignoring or fulfilling his or her fiduciary responsibility to shareholders? As the same Authentic Organizations blog commenter quoted above noted,
“But if your post sparked a shareholder movement instructing managers to pursue layoff alternatives, there would be no fiduciary conflict.”
Whether its shareholders or greater public awareness, how do we get managers making the decisions to reduce labor costs, and the markets that evaluate those decisions, to expand their point of view? It's a matter of fiduciary responsibility, organizationally, domestically and globally.
(Be sure to check out the updated Downsizing Flexibility Champions honor roll)
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February 26, 2009
05:38 pm | 0 recommendations | 3 comments
On the “Using Workplace Flexibility as Part of a Downsizing Strategy” Flex Options teleconference for the U.S. Department of Labor Women’s Bureau (transcript now available here), I announced that I was going to start a list honoring organizations that used workplace flexibility to manage costs and minimize layoffs.
The goal is to inspire other leaders to work with their employees and create innovative strategies to flexibly manage through this crisis beyond the knee-jerk “cut” of mass layoffs.
Here’s a perfect example of how opening the dialogue with employees can result in creative solutions to reduce costs and avoid job cuts. A colleague sits on the board of a not-for-profit. During their last meeting, it was decided that the organization needed to make dramatic cost reductions. Immediately, the director said, “I’m going to have to layoff people, but before I do that let me ask everyone if they have any other ideas.” To her surprise, seven of the 20 staff members offered to reduce their schedule and pay. And with that, she was able to avoid the layoffs she feared she was going to have to make.
Whether it’s reducing pay and schedules, telecommuting to save real estate costs, adding unpaid vacation days to the calendar, job sharing, having former employees consult on a project-basis or offering sabbaticals/furloughs, there are many creative applications of flexibility as part of a downsizing strategy. And it’s not just an “option to consider,” but a matter of global stability. Not to mention using that same flexibility to achieve the other important resource management, cost-cutting, client service, productivity and innovation goals I've written about in previous posts (here, here, and here).
The List – The Downsizing Flexibility Champions (Updated 5/29/09)
The following have been identified from conversations, emails sent to me and articles. I will continue to add to the list, so please send me your examples:
Union Pacific Corp:Railway keep 1/3 of 5,000 furloughed workers on retainer with full benefits and partial wages to avoid repeating mistake in 2004 when caught unprepared by unexpected recovery.
Continental Airlines:Saves some call center jobs by having agents work remotely, taking leaves of absence, or making a transfer.
Singapore's Ministry of Manpower: Issues guidelines encouraging employers to use flexible downsizing strategies to minimize layoffs.
KPMG (UK)--Four-day week for 13 weeks and offered voluntary 1 to 3 month sabbatical at 30% pay
Gleneagles/Diagio (UK)--voluntary severance, unpaid leave, reduced working hours
LDV Vans (UK)--workers took 10% pay cut and accepted a three-day week as well as had their bonuses canceled.
Beth Israel Deaconess Medical Center--under the leadership of CEO, Paul Levy, employees are giving up pay and benefits to avoid layoffs.
Norton Rose--London-based law firm is instituting a four-day workweek at 85% pay and/or a paid sabbatical for four to 12 weeks at 30% pay.
B and W Tailer Hitches--owner, Joe Works, continues to pay employees even though there is less work, but allows them to donate their time making needed repairs in their town.
R.D. Jones--a Baltimore interior design firm instituted a four-day workweek after a two week furlough and and a 20% cut in salaries.
Australia's Federal Industry Minister--"wants unions to help struggling manufacturers by accepting job-saving deals in which workers work shorter hours or accept other flexible arrangements to reduce labour costs as an alternative to outright sackings."
Vera Institute of Justice--cut the workweek of 5 of 130 full-time employees to three days a week.
Shinchang Electrics Co., South Korea--reduced wages by 20% in exhange for no layoffs among its 810 workers this year.
A Canadian United Steelworkers union--600 salaried employees agreed to a four-day work week to avoid layoffs.
U.S. Bank - may reduce pay and hours to cut expenses 5%.
Global Tungsten & Powders--1,000 workers taking unpaid furloughs.
The Financial Times—offering staff the chance to work three days a week over the summer.
The Sigma Group, an advertising agency, is offering employees part-time hours and even monthly sabbaticals.
Accenture—“announced a voluntary sabbatical program known as "Flexleave." Offered to about 1,400 consultants mostly in the United States, the program gives them 20 percent of their salaries and continues benefits over a six- to 12-month period. Stock options remain in place for those who took the offer. The only caveat: while employees may take another job during their leave, they can't work for a competitor.”
Cisco Systems—“offered the 8,500 employees it laid off in April an unusual deal as well. Instead of a severance package, affected employees can receive a third of their salaries, all benefits, and stock-option awards while working for one year at a not-for-profit group already associated with the company.”
415 Productions—“the company offered either an overall 5 percent pay cut, or a four-day work week reflecting the appropriate decrease in pay.”
Acxiom Corporation—“a 5 percent mandatory pay cut, plus an additional 5 percent volunteer pay cut is tempered with increased stock options.”
The Milwaukee Journal Sentinel—may institute a one-week unpaid employee furlough.
Megavolt--agricultural machine re-manufacturer--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.
Federal Express--announced a permanent 5 percent pay cut for 36,000 salaried, exempt employees nationwide.
Dell--nearing the end of nearly 9,000 job cuts, has asked employees to consider taking up to five days of unpaid vacation, is offering voluntary severance packages and has instituted a global hiring freeze.
Hewlett-Packard Co.--cut salaries by 2.5% to 20% and reduced contributions to employee 401(k) plans. Last year, HP asked employees to take unpaid vacation days and extended a planned holiday shutdown to two weeks.
Corning-- maker of glass for flat-panel screens froze hiring and cut discretionary spending. In the fall, it shifted many employees to four-day workweeks and began eliminating 1,400 temporary and contract workers.
Arizona State University—furlough staff 9 to 15 days by end of June, estimated will save $25 million and avoid layoffs of 1,000 administrative personnel.
University of Maryland—20,000 employees 6 days without pay based on their salary, which protects the lowest paid employees.
Port of Seattle—800 nonunion workers for two weeks, estimated savings $2.9 million, and they are in negotiations with unions for more savings.
Ashland, Inc.—two week furlough, first time in history, for nearly all salaried employees in U.S. and Canada.
Clemson University—furloughing all employees for 5 days and set up a relief fund for low-wage employees.
Pella Corp—2,400 employees will have one scheduled furlough week, every four to six weeks with state unemployment brought in to subsidize workers for days not paid.
Keep the stories comin
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February 25, 2009
11:21 am | 0 recommendations | 4 comments
When I started blogging about flexibility as an alternative to layoffs, my primary focus was to encourage companies to “consider” how reduced schedules, job sharing, shifting hours, sabbaticals/furloughs, and project-based employment could lower labor costs while retaining valuable talent and minimizing job cuts.
I saw flexible downsizing as a powerful “option.” But as the rate of layoffs multiplied exponentially in January, my sense of urgency began to rise. Then I read, “Unemployment Surges Around the World, Threatening Stability” by Nelson D. Schwartz in the New York Times, and “The Axis of Upheaval,” by Niall Ferguson in Foreign Policy. I now believe using workplace flexibility to manage costs (not just labor) and minimize layoffs is critical to global stability and security, not just an “option” to “consider.”
According to Schwartz, the rate of job cuts domestically and internationally is accelerating to levels not seen since the Depression, “Worldwide job losses from the recession that started in the United States in December, 2007 could hit a staggering 50 million by the end of 2009, according to the International Labor Organization, a United Nations agency. The slowdown has already claimed 3.6 million American jobs.” France’s employment minister, Laurent Wauquiez, explained, “This is the worst we’ve had since 1929. The thing that is new is that it is global, and we are always talking about that. It is in every country, and it makes the whole difference.” The International Monetary Fund “expects that by the end of the year, global economic growth will reach its lowest point since the Depression.”
And like the 1930s, Ferguson points out, “…most countries are looking inward, grappling with the domestic consequences of the economic crisis and paying little attention to the wider world crisis. This is true even of the United States, which is now so preoccupied with its own economic problems that countering global upheaval looks like an expensive luxury.”
But if Schwartz is correct, our domestic preoccupation could cause us to overlook social challenges already emerging in other countries as a result of the global economic downturn, “Millions of migrant workers in mainland China are searching for jobs but finding that factories are shutting down. Though not as large as disturbances in Greece, or the Baltics, there have been dozens of protests at individual factories in China and Indonesia where workers were laid off with little or no notice.”
And the national security implications from the international unrest were serious enough for the new U.S. director of national intelligence, Dennis Blair to tell Congress, “that instability caused by the global economic crisis had become the biggest security threat facing the United States, outpacing terrorism.”
Interestingly, just as the world sees the U.S. as a source of the economic problems, they are now following our lead in resorting to “layoffs” as a response. As Schwartz notes, “While the number of jobs in the United States has been falling since the end of 2007, the pace of layoffs in Europe, Asia and the developing world has caught up only recently as companies that resisted deep cuts in the past follow the lead of their American counterparts.” Following our “lead” with layoffs? Oh no.
Obviously, a strong, research-based business case in favor of flexible downsizing (here and here) hasn’t gotten enough U.S. companies to look beyond layoffs for many of the reasons I’ve noted in past posts (here and here). Maybe the need for global stability finally will.
It’s in America’s best interest, both economically and from a national security perspective, to take the lead and chart a new more flexible response to the downturn. Leaders can use strategic flexibility to manage their business through the crisis while keeping as many people as possible employed in some way. Again, research shows that layoffs often don’t achieve their intended bottom-line objectives. Not to mention the body blow to consumer confidence which economists believe will be one of the key factors in a recovery. Falling back on these outdated, unimaginative, all-or-nothing, layoff-based management practices could ultimately cause harm in areas that aren’t hitting the radar screen of leaders.
As South Korea’s former ambassador to Washington says in Thomas Friedman’s New York Times’ column today, “There is no one who can replace America. Without American leadership, there is no leadership. That puts a tremendous burden on the American people to do something positive.” This downturn isn’t like other recent recessions. It’s happening rapidly. It’s global. And its’ potential economic and security impact requires bold, innovative, creative approaches that go beyond old-school thinking. So we have to ask ourselves one more time—who’s going to take the lead and show the world another more flexible way to manage through this global economic crisis? We, the U.S., need to raise our hands and finally take action.
(Update: Since posting, Watson Wyatt released survey results showing companies expect their rate of layoffs to decline. Let's hope this prediction holds up inspite of economic data that continues weaken such as "initial jobless claims soared to 667,000 in the week of February 21 from 631,000 a week earlier. That was well above the 625,000 forecast and the highest going all the way back to 1982.")
What do you think? Is finding flexible alternatives to layoffs still an interesting “option” to “consider” or is it now a economic imperative for global stability?
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February 11, 2009
09:27 pm | 0 recommendations | Be the first to comment
DISCLAIMER--This information does NOT constitute legal advice.
Over the last few months as I’ve blogged about making flexibility part of a downsizing strategy, I’ve received a number of questions about the legal considerations. Every circumstance is unique and should be reviewed directly with an attorney; however, New Jersey-based employment attorney, Leslie A. Lajewski, was willing to offer some broad insights to get leaders started.
Ms. Lajewski is the Employment Litigation, Training and Counseling Practice Group Leader, Coughlin Duffy LLP in Morristown, New Jersey. She is careful to emphasize that “these are my opinions, not the opinions of my firm and this does not constitute legal advice and should not be relied upon as legal advice.”
I am not an attorney, but after reviewing Ms. Lajewski’s opinions below, it seems that reducing schedules and salaries, incorporating additional unpaid days off, and/or offering sabbaticals and furloughs to reduce labor costs can be done with some planning and due-diligence. Transitioning an employee to project-based, contractor status, however, requires an extra level of compliance. Hopefully, this information will give you a place to start a conversation with your own counsel who will then draw a legal opinion.
1) Salary and Schedule Reduction: “If I wanted to reduce the salaries and schedules of a percentage of my employees, what legal issues would I have to consider? Is it different for exempt and non-exempt employees?”
First, check if there are contracts or employment or other agreements (handbook policies, union collective bargaining agreements, etc.) that prevent or limit you from reducing salaries or schedules.
Next, you need to consider whether the employees are exempt or non-exempt as that affects how you should implement the reduction in salaries and schedules. A non-exempt employee is one who is paid on an hourly basis or whose salary is calculated by an hourly basis and who receives overtime pay for hours worked over 40 hours a week (or 8 hours a day in California).
To reduce the payroll cost associated with an hourly non-exempt employee, the employer may simply reduce the number of hours the person works and correspondingly reduce the amount of money paid to that person each week. If the person is a salaried non-exempt employee, the employer should reduce the salary by the same percentage as the reduction in hours. For example, a salaried non-exempt employee makes $500 a week and works 40 hours a week. The employer decides to reduce the employee to 32 hours a week (or 4/5ths of what she was working previously). The employer would then reduce the salary by 1/5th as well (or by $100), for a new salary of $400 a week.
With regard to exempt employees, the reduction in salary cannot be based on hours worked. This is because part of the definition of an exempt employee is that their pay is not calculated on the number of hours they work in a week - the salary is the same whether the employee works 30 or 50 hours in one week. A reduction in salary for an exempt employee should simply be based on the amount or percentage that the employer seeks to save. To tie a reduction in salary for an exempt employee to their hours worked will essentially change the classification of the exempt employee to one of non-exempt employee status in the eyes of the NJ and Federal Wage and Hour Divisions. This means that the employee would then be entitled to all overtime payments for hours worked over 40 in a week.
Another legal consideration is whether the reduction in salaries and schedules has a discriminatory impact on any particular protected class of employees. This means that, intentionally or unintentionally, the group of employees being affected by the reduction in salary are all minorities, women, older, etc. It is illegal to implement a policy or practice that has a discriminatory impact on any protected class so employers should review the employees being affected to make sure the impact does not affect any one particular protected class over another.
2) Non-paid Vacation Days: "If I wanted to add additional non-paid vacation days what issues would I need to consider?"
The issues raised above would need to be considered in relation to this implementation as well.
3) Transition to Project-based Contractor: "If I wanted to transfer an employee from full-time to contract, project-based status what do I need to think about?"
The first thing that should be determined is whether the employee has any contract (whether oral or in writing) or other agreement (such as a policy distributed by the company or contained in the company handbook) that would prevent the employer from modifying their status or that would trigger other rights and obligations if the employment status is changed.
If there is no impediment to changing the status, the next issue to consider is how you want to pay the employee. If you are still paying them as an employee, deducting withholdings, etc., there should be no issue. It sounds like you are thinking of making the employee an independent contractor; however, the Wage and Hour Divisions and NJ Courts take a very strict view of what constitutes an independent contractor versus and employee (because they do not want employers misclassifying employees as independent contractors to avoid paying employee taxes, providing employee benefits, etc.).
The following factors are considered in determining whether a person is an employee or independent contractor. The more factors that apply to the person, the more likely they are truly an independent contractor.
a. The person is customarily engaged in an independently established trade, occupation, profession or business.
b. The person is incorporated, in a business partnership, or is registered as a State or Federal employing unit.
c. The person owns and uses their own equipment, tools, supplied, vehicles, etc. in performing the services.
d. The person independently advertises their services in phone books, print ads, etc.
e. The person has their own business stationary, cards, address, phone number and email.
f. The person rents or owns her own office space.
g. The person has their own employees.
h. The company does not control the details or means by which the person's services are performed.
i. The person maintains control over their schedule and sets their own hours of work.
j. The services do not need to be performed personally by the person.
k. The person provides their own billings statements to the company for services rendered.
l. The company does not withhold income taxes for the person's pay; the person pays their own income tax and self-employment tax.
m. The person keeps track and pays their own expenses.
n. The company does not provide benefits or insurance to the person.
o. The person's remuneration is spread out among the company and other customers with whom the person works.
p. The person can realize a profit or loss on the services rendered
As you can probably tell from the list above, it would be difficult for an employer to change an employee's status to that of an independent contractor.
4) Sabbatical or Furlough: If I wanted to offer a portion of my workforce a sabbatical either with or without benefits, what are the legal issues to think about?
You have the same considerations described in response to Question 1. In addition, if the employer is subject to the FMLA or the NJFLA recognize that providing benefits to people who take sabbaticals could trigger a responsibility under either of those Acts to provide benefits to employees taking leave under those Acts. (Pursuant to those Acts, employees on leave are entitled to the same benefits and pay as the company gives to employees on other types of leave.)
Finally, from the employee-relations perspective, make sure any reductions in pay hit the people at the top as well as those in the middle and at the bottom. If the company wants buy in (instead of a revolt), people need to know the pay reduction is affecting the decision makers - that everyone is sharing in the pain.
Thank you to Leslie Lajewski, Esq., for sharing her insights and giving us a place to start.
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February 11, 2009
07:22 am | 0 recommendations | Be the first to comment
Using Workplace Flexibility as Part of a
Downsizing Strategy
…What are companies doing? What's working?
What are the challenges to this approach?
February 12, 2009
2:00 p.m. to 3:00 p.m. EST
Free Flex-Options Teleconference
Hosted by the U.S. Department of Labor, Women’s Bureau
In late December, The New York Times published an article, "More Companies Are Cutting Labor Costs Without Layoffs," that highlighted the use of flexibility as an alternative to layoffs. It's not a new concept – offering workplace flexibility options to limit or sidestep layoffs – yet this go-around the process seems more strategic. Join us on this teleconference to learn more!
Cali Williams Yost, CEO and Founder of Work+Life Fit, Inc. (http://www.worklifefit.com/), will kick off our discussion. Cali is also an expert blogger for Fast Company and has devoted her most recent weekly blogs to the topic of "flexible downsizing."
Also joining our teleconference is Betty Purkey, recently retired manager of work-life strategies at Texas Instruments. This year, Betty decided to take a voluntary retirement package from her company. She brings a wealth of personal and human resources professional experience to our discussion.
You'll have an opportunity to join the discussion, ask questions, share best practices, and learn from other participants from across the nation.
To register for this teleconference:
Visit http://www.dol.gov/wb/flex.asp
or Call 202-693-6710.
Once registered, we will send you the toll-free
call-in number and passcode.
For more information about the Flex-Options project, please contact:
Women’s Bureau, U.S. Department of Labor, 202-693-6710, http://www.we-inc.org/flex.cfm
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February 4, 2009
06:11 pm | 0 recommendations | 5 comments
Last week I discussed the ways in which market pressures reward layoffs, discouraging more creative approaches to corporate downsizing. I believe that market pressure is a main motivation behind the immediate jump to “layoffs,” which ignores options like reduced schedules, job sharing and sabbaticals. But there are other less obvious influences that have been brought to my attention this past week. (For more, join me for the U.S. Dept. of Labor's free Flex-Options teleconference on 2/12 from 2-3pm ET, "Using Workplace Flexibility as Part of a Downsizing Strategy").
"We've laid people off, and we may need to do more layoffs in the future.”
It’s never too late to incorporate work life flexibility into your downsizing strategy. I’m always fascinated by the “all or nothing” mentality individuals bring to their personal work+life choices. But I’m beginning to see this same thinking in organizations as they consider downsizing. Remember, there’s historical precedence from the early 80’s for using flexibility to manage labor costs. It’s not a choice between flexible downsizing or layoffs. There’s room in your downsizing strategy for both options—they’re not mutually-exclusive. And an organization gets work+life bonus points for including all the options at their disposal.
“Our systems are incompatible with multiple employment scenarios.”
In other words, “It’s too difficult and too expensive for our systems to account for and track some people working a reduced schedule, while other people share jobs, take sabbaticals, or become project-based employees. So, because our systems can’t handle it, it’s easier to lay people off.” I know this makes sense to the people who have to deal with the system, but there’s a pretty clear cost/benefit rationale (as described here) for trying to figure it out.
“But we have to do something! And figuring out all of those different scenarios takes too long.”
I will acknowledge that the 4th quarter 2008 economic downturn was rapid and surprising. And I recognize that some companies were already on the brink of catastrophe, and forced to take drastic measures.
But I find it hard to believe that for most organizations a) there wasn’t an early indication that circumstances might require creative thinking about how to continue operating profitably and b) there isn’t still some time to think carefully about all of the alternatives and their ramifications (again, here’s the cost/benefit).
“We just aren’t comfortable with flexibility.”
This is probably the most honest reason why more organizations aren’t considering reducing schedules, encouraging people to share jobs, offering sabbaticals, or shifting people to project-based status. The deterioration in the market occurred rapidly and required a quick response. Unfortunately a period of crisis may seem like the wrong time to develop and implement a business-based work life flexibility strategy, and then use it as a strategic lever to downsize. But it’s never too late to give flexible labor cost savings a try. Jennifer Swanberg, Executive Director of the University of Kentucky's Institute for Workplace Innovation reiterates the strong business case for flexible downsizing.
As the wave of layoffs seems to grow daily, it’s important to make sure that organizations challenge their resistance and consider alternate approaches to achieving their labor cost saving goals.
My hope is that having been caught flat-footed by the recession will encourage leaders to get their companies ready to more flexibly respond to the next challenge. Because there will be a next challenge. In his most recent book, A Sense of Urgency, management guru John Kotter predicts that, “For the next five to ten years the rate of change will continue to go up and up, with consequences for nearly everyone.” Whether it’s the spike in energy costs early last year, or the steep economic downturn, rapid change is a given. Excuses such as, “our systems aren’t compatible,” “we have to do something,” or “we just aren’t comfortable with flexibility,” aren’t going to set organizations or individuals up for success in an era of rapid change.
What do you think? What are some of the other reasons organizations aren’t incorporating work life flexibility into their downsizing strategies?
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January 28, 2009
11:31 am | 0 recommendations | 3 comments
“Stocks Surge on Layoff Announcements” was the headline on the front page of the Washingtonpost.com this week as major U.S. companies announced 55,000 job cuts. At the same time, The Conference Board projects that approximately two million more jobs may be lost in 2009. I can’t help but wonder:
- What role does the market play in encouraging organizations to move right to job cuts without first considering flexible downsizing?
- Is the need to please the analysts what’s best for organizations, individuals and the economy in the short-term and long-term?
- And do these analysts even know what they are talking about?
First, the direct link between layoffs and the market is irrefutable when you consider how shares of the following companies responded after job cuts were announced on Monday:
“Sprint Nextel gained 1.8 percent after announcing it would lay off 8,000 workers. Home Depot announced plans to eliminate 7,000 positions, or 2 percent of its workforce, and close its EXPO Design Centers. Its stock was up 5.5 percent…”
The article in the New York Times announcing 62,000 job cuts worldwide starts out, “Employers have tried to nip and tuck their labor costs by reducing overtime, shortening the workweek and freezing wages, but now, they are reaching for the saw.” But did they really try alternative approaches? Experts like me as well as numerous reporters have been struggling to find concrete examples of wide scale flexibility to achieve at least part of corporate labor cost saving goals. The reality seems to be that most companies are going right to layoffs.
It’s not surprising that business leaders experiencing downturns in their business cut jobs, especially when their peers are doing it. They get very publicly rewarded. But as Wharton’s Peter Cappelli explained in my post last week, this “herd mentality” doesn’t make a lot of sense when you look at the real costs of downsizing.
This brings us to the next question, is cutting jobs to meet the short-term expectations of analysts really what’s best for organizations, individuals and the economy in the short-term or the long-term?
For many reasons, the answer is no. Here’s a quick and dirty cost/benefit comparison. What is the impact of job cuts, versus the impact of reducing schedules, sharing jobs, transferring to consulting status, or offering sabbaticals? The comparison is based on the 5% salary/schedule reduction versus 5% layoff scenario Dr. Cappelli presented in his article HR Executive online article:
5% Layoff:
Benefits: Immediate reduction in salary and benefit costs
Costs: Severance packages; potential increased legal liability; determining who will go; reduced morale; more work for those left behind; uncertainty encourages others to leave; reduced productivity; lost investment in talent recruited over the past few years.
5% Salary/schedule reduction:
Benefits: Immediate 5% reduction in salary expenses; no severance packages; less liability; a sense of shared sacrifice to boost morale; remaining employees not overburbened with productivity-killing workload; retaining investment in talent and training made over the past few years; and factoring in the risk of not having enough talent in place to hit the ground running when the economy recovers.
Costs: Still paying benefit costs
This analysis doesn’t mention the potential boost of consumer confidence when people know that while they may make 5% less, they still have a job. And economists continue to point out that consumer confidence will be the key to the economic recovery.
Finally, do the market analysts who have so much influence over the actions of corporate leaders really know what they are talking about?
According to Dr. Cappelli, “The financial community isn’t especially aware of alternatives (to layoffs) and the benefits associated with them, and their focus is very much on the immediate financial performance, not how the companies will respond when business improves.”
I happened to have been a credit analyst, and I also graduated from an MBA program that produces many of the top financial analysts. My personal experience confirms that unless there has been a radical shift in the world of financial analysis over the last ten years, there’s little to no emphasis in the process on quantifying the cost savings and benefits from flexible downsizing outlined above. It’s a lot easier to calculate the impact of an immediate layoff: “50 employees cut, at an average cost of $100,000 per person, for a bottom line savings of $500,000.” If I’m wrong, I urge analysts to let me know.
Do you think the response in stock price would have been the same if the headline read, “Ajax company announced that 15% of its workforce reduced their schedule and salary by 25%; thereby, reducing salary expenses and the need for severance packages, limiting potential liability exposure, increasing morale from a shared sacrifice, not overburdening fellow employees and maintaining productivity, retaining their past investment in talent, and setting themselves up to react to a recovery.” The optimist in me would like to think the answer is “yes,” but the realist says sadly, “no.” And therein lies the problem.
The evidence seems to confirm that the market does play a direct role in influencing corporate leaders to choose layoffs over more flexible strategies for achieving their labor cost savings goals. That's not to say that some job cuts aren't going to be necessary, but it's not the only downsizing strategy.
As the announcements of major layoffs increase, we need to challenge the assumptions used by analysts that reward decision-makers for layoffs over a more creative, flexible approach to managing talent through this difficult period. Now, who’s going to say something?
How can we get the market to reward a flexible approach to labor cost savings that helps companies respond to the downturn without cutting jobs?
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January 22, 2009
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Today, Microsoft announced the first layoffs in its history. Nowhere in the announcement were flexible alternatives to job cuts mentioned. The signal this sends to other organizations is that cutting employees is the only way to achieve labor cost savings. But, it’s not.
Since the summer, I’ve mentioned in numerous posts the need for a three-tiered, more flexible approach to downsizing that goes beyond job cuts (here, here, here and here). This message gains importance each week as the rate of layoffs by companies, like Microsoft, continues to snowball.
There are creative, cost-effective ways to use strategic work+life flexibility to reduce labor costs while remaining connected to valuable talent. These options include reduced schedules, job sharing, sabbaticals, and contract workers. But I didn’t realize that there’s historical precedence for flexible downsizing until I read a terrific article entitled, “Alternatives to Layoffs,” in Human Resource Executive Online by Dr. Peter Cappelli, the director of the Center for Human Resources at the Wharton School of Business (a recent blog post by AWLP’s Kathie Lingle also provides interesting historical context).
Not only does Cappelli outline the history of a more flexible approach to labor cost reductions, but he’s as mystified, as I am, that companies aren’t considering these alternatives. In fact, he contends we are witnessing a “herd mentality” in the organizational response to the economic downturn. Companies need to reduce costs, see their peers laying off workers, and think that’s what they need to do. No, it’s not.
In an effort to shift the herd, I spoke recently with Dr. Cappelli. Highlights of our conversation include:
CY: Dr. Cappelli, you wrote, “So here‘s the amazing thing: Despite the extraordinary pressures to cut costs, the knowledge from decades past about alternatives to layoffs, and the contemporary concerns about losing skilled employees, almost no one is doing anything about it?” Why do you think a more flexible approach to downsizing is being ignored?
PC: There’s a long history of flexibility in managing the workforce from the 80’s especially in Europe. There are two types of flexibility—functional flexibility which is how to flexibly expand the capacity of work without hiring on additional employees. And then there’s numerical flexibility, which is using flexibility to cut back on staffing while protecting your “core” employees. This is the type of downsizing we are talking about today.
What happened in the late 80’s into the 90’s is that companies really didn’t care about protecting the “core” of their employees. It wasn’t such a big deal if people left. The feeling was they are easy to replace. We can get new people.
And another reason is that there’s a focus on short-term financial benefits. Leaders are listening to financial analysts who don’t understand the true cost of downsizing.
CY: But you’ve noted in the article such a clear cost-benefit analysis that shows it actually costs less to retain someone at a 5% reduction in pay than a 5% layoff because “there are no severance packages; the legal liability and associated costs are much less; and the savings come instantly without the agonizing administrative process of figuring out who has to go…”?
PC: We really haven’t experienced any serious downsizings since 1991. Institutional memory is short, so many of the leaders in positions of influence and decision-making weren’t around in the early 80’s, or the last time a flexible approach to labor reduction was used. Really, the answer involves raising awareness about all that did go on in the past, since there are so few visible examples currently.
CY: Are there overwhelming legal constraints that would limit the use of flexible downsizing as an attractive alternative to layoffs?
PC: Well, that’s a question for an employment lawyer. Yes, there are Fair Labor Standards that need to be considered when cutting wages or reducing hours but nothing prohibitive
CY: Where’s human resources in all of this?
PC: They are out to lunch, unfortunately. They are completely afraid to take a position, perhaps they are concerned about being seen as a wimp. They spend so much time picking up on the CEO’s signals and executing without presenting alternatives he or she might not have thought of. They are often so far behind the curve in terms of what the business decides to do that it’s way too late to introduce a different approach without running the risk of being seen as obstructionist. The goal is for HR to be proactive. The minute you see the business going down, that’s when you present the case for flexible cost cutting. Unfortunately, what we are witnessing is that the train has already left the station.
CY: I often wonder if perhaps part of the problem is the language used to describe flexible alternatives to job cuts. I use the term work+life flexibility because that’s how reduced schedules, job sharing, project-based consulting, etc. are described in many organizations. But maybe “work+life flexibility” is seen as a perk or benefit, and not a business strategy in many of those same companies. Is there another way to describe flexible labor cost savings that would get leaders to recognize the strategic application?
PC: Maybe “work+life flexibility” sounds too employee-focused. Think about a way to make the concept attractive to an organization in an economic recession – perhaps investment retention or labor cost flexibility.
CY: I agree with your “herd mentality” theory to explain why organizations jump right to job cuts. You wrote, “The fact that virtually every company, despite their varying circumstances, ends up pursuing exactly the same approach to cost-cutting suggests that the processes involved have more to do with psychology—herd mentalities—than to any rational processes.” What more can be done to shift the herd?
PC: We need to get the countless examples from the past as well as the few examples from today out there. In the article, I mention Federal Express, where they are cutting wages by 5% to reduce costs with executives taking the biggest cuts (10%). Also, I just heard about 16 states that now allow workers with reduced schedules to draw unemployment. This helps employers achieve their cost-savings goals with the support of public funds.
Thanks to Dr. Cappelli for sharing his thoughts.
Bottom line: Before your company cuts jobs consider more creative flexible way to achieve labor cost savings. If you know of companies that have used flexibility in both downsizing and broader business cutting strategy, please let me know. Let’s work together to shift the herd.
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January 14, 2009
04:50 pm | 0 recommendations | 3 comments
“We do not expect work flexibility.” That’s the headline from PricewaterhouseCoopers' (PWC) Millennials at Work global survey of 4,271 recent graduates. Wow. A strong statement, and one that completely contradicts what I find in my work, which is that millennials not only want work+life flexibility, they expect it.
The summary of findings concludes that, “Although the millennials seem to indicate flexibility is not expected, we did however receive many comments about wanting more flexibility.” What? Which is it? Something wasn’t adding up. And might organizations take these findings from the well-respected PWC as license to stop focusing on greater work+life flexibility, especially in this economic environment?
The PWC researchers attributed the difference between the quantitative findings and qualitative comments to the fact that, “Perhaps the millennials do not feel that total flexibility is a realistic possibility, even though it is something they might desire. We also believe that their expectations may change as they get older and the need for greater flexibility for example to look after family members may become more of a priority.”
After digging further, I realized the difference between my understanding of millennials’ expectation of flexibility and PWC’s understanding related to how we defined “work flexibility.”
The survey asked: “Do you think your office hours will be mainly flexible hours/mainly regular office hours/ regular office hours with some flexible working?”
The survey found:
- 66% Regular office hours with some flexibility
- 18% Mainly flexible hours
- 16% Mainly regular office hours
My Interpretation: 84% of millennials expect work+life flexibility
- 66% want to work regular office hours, but expect day-to-day flexibility which are the small, periodic changes in where, when and how they work given their work and personal realities, and
- 18% expect a formal flex plan that allows them consistently to work flexible hours.
My definition of work flexibility (or “work+life flexibility”) includes both day-to-day, informal flexibility in where, when, and how work is done, as well as formal flex plans. And as I suspected, a majority of millennials do want “some flexibility” which means being able to work from home periodically, or come in a little late or leave a little early as needed without a problem.
That day-to-day flexibility which is so important to this group is not part of the culture in many organizations. If you want millennials to work for you it needs to be, along with a more formal ability to telecommute, work flex hours, etc. All of this adds up, as I see it, to “we do expect work flexibility.”
PWC’s Interpretation: “The theory that future generations will reject traditional work practices is debunked. The majority expect some element of office based working (82%).”
- 66% Regular office hours with some flexibility
- 16% Mainly regular office hours
In other words, if a millennial expects to work in the office for the most part during traditional business hours, they didn’t want work flexibility. Hmmm. I am unaware of research that says a majority of millennials want to completely reject traditional work practices (please send me that research if you have it). But that seems to be the definition PWC used to reach their conclusions.
Same data, two very different interpretations. Which is right? It depends upon how you choose to define work flexibility. However, I respectfully disagree with PWC’s conclusion that millennials don’t expect work flexibility. They do.
What do you think? Which interpretation is correct?
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January 7, 2009
04:01 pm | 0 recommendations | 3 comments
December job cuts were far worse than expected. A recent headline in the Wall Street Journal read, “No-Layoff Policies Crumble,” as a number of companies with historical “no layoff” policies have been forced by the economic downturn to do the unthinkable. Unfortunately, this all-or-nothing approach ignores an important, interim possibility—flexible downsizing.
As I’ve written many times (here, here, and here), using strategic work+life flexibility--reduced schedules, sabbaticals, job sharing, project-based consulting—can help organizations avoid at least some layoffs. But, nevertheless, according to the WSJ article:
- After 51-years of never laying anyone off, even after 9/11, Enterprise Rent-A-Car is laying off 1,000 or its 75,000 employees.
- Gentex Corporation, a company that “didn’t even have a layoff policy,” dismissed 15% of its workforce or 370 employees.
- Life Time Fitness laid off 100 of its 15,000 employees.
In fairness, the WSJ article discussed how the companies tried to avoid layoffs by “freezing salaries,” “drumming up work for idle employees,” “filling openings with temporary workers,” and “moving employees to busy segments from those with little work.” But nowhere did the article mention creative uses of strategic flexibility that would keep valued employees while allowing companies to reduce labor costs.
Peter Cappelli, director of the Center for Human Resources at the University of Pennsylvania’s Wharton School was quoted as saying, “Companies really respond to these things based on what they think they ought to be doing. They watch what their competitors do and listen to what the investment community tells them.”
Okay, so clearly companies are not seeing their peers use flexible downsizing as an interim step before layoffs. So maybe they think this is the only option. And the investment community is stuck in the all or nothing, short-term answer to managing labor costs. But what are the hidden costs of this inflexible, zero sum approach?
- As economist, Albert Wojnilower, noted in a recent New York Times article, “The job insecurity is very serious; that is the worst aspect of all of this. But most upturns in the economy have begun with upturns in consumption, when people who still have jobs stop worrying about losing them.” If employees thought they’d have a reduced schedule, have to share their job, or become a project-based consultant before being laid off, would it make people less afraid and would the recovery begin sooner?
- Many of the economists in the same New York Times article felt there is a chance the economy could turn around within the next year. Then what? Will companies be ready to hit the ground running, or will they be scrambling to find and train new people? Wouldn’t it be smarter to increase the hours of a worker on a reduced schedule, or hire back someone full-time who had been consulting?
With Alcoa announcing it's laying off 13% of its workforce or 13,500 people, let's recognize that maybe the traditional “all or nothing” approach to managing labor costs is not the only answer. There's a third powerful step in the middle, using strategic work+life flexibility to reduce costs while staying connected to valuable employees. Flexible downsizing may also have economic benefits beyond direct labor costs savings for the employer, such as limiting consumer fear and positioning organizations to have trained talent in place when the recovery begins. But first organizations need to understand, downsizing is a three-stage process, not two.
What do you think? With unemployment numbers approaching historic levels, can we afford an all or nothing approach to downsizing?
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