Even though there was some positive response to my recommendation to institute pay reductions rather than additional layoffs, there was substantially more negative response to the idea. Since the economic landscape doesn’t look any better for the foreseeable future and companies are continuing to consider how to best reduce operational costs, here is additional support for the concept that reducing wages is better for the Company than laying off the organization’s talent (remember: I have no problem laying off “The Others” at every level of the organization):
1. Evidence that layoffs help improve organizational performance is weak. I can find no studies showing that layoffs improved a company’s long-term financial performance. However, studies do show layoffs either had no significant effects on performance or had a negative effect on performance of those still employed – “the survivors” – after the layoff. 2. Layoffs focus too much on immediate savings of labor costs, but not enough on the long-term HR costs and negative consequences associated with the layoff. A Bain & Company study -“Debunking Layoff Myths”- found it takes companies 12 -18 months before the financial benefits of layoffs kick in, because of the negative effects of layoffs on “the survivors’” productivity. By the time the savings from the current layoffs kick in, the economy and company will be in recovery. Companies will then be forced to spend the money saved from the layoffs to hire and train new employees to replace those employees who were laid off.
3. Layoffs destroy the Team Concept. The recession has intensified feelings of being part of a team in the workplace. A survey by Towers Perrin found a growing sense of “shared destiny” with employers – 76% of respondents in the December survey responded they were personally motivated to help their company succeed, up from 69% four months earlier. To capitalize on this trend, Companies need to strength the team concept by having the all the team members share in the sacrifices necessary to make the team successful.
The Bottom Line: No one wants to lay Employees off or to implement pay cuts. But when costs have to be reduced to ensure the survival of the organization, implementing pay cuts rather than layoffs is the best approach to follow. This approach encourages the attitude of “One for all and all for one” to begin to flourish while beginning to eradicate the prevailing attitude of “WIIIFM?” that to many Employees continue to believe in. The recession is providing Companies with the opportunity to really emphasis and support teamwork rather than just give it lip service. In the long run, that will definitely be better for the organization and the Employees.
Do you see the development of the “One for all and all for one!” attitude at your Company? What should your Company do to take advantage of this attitude?
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