Professor Tom Davenport of Babson College recently wrote an interesting post on blogs.harvardbusiness.org entitled, “Is Forced Time Off Fair?” He challenges the “fairness” of flexible labor cost savings strategies such as reduced schedules/salaries, unpaid vacation days, job sharing, and furloughs. And he warns of unintended consequences like losing people who don’t want to participate. While he raises points worth considering, even most of the commenters responding to the post on the site agree—these alternatives may not be completely “fair” but they are necessary in many cases, and are certainly better than layoffs.
Professor Davenport starts off by saying,
“One of the common approaches to dealing with this recession is for companies to ask—well, tell—employees to take time off without pay every week or two. This 10 or 20% haircut is supposed to indicate that ‘we’re all in this together,’ and that it’s better for everyone to suffer a little than lay some people off. While I have sympathies with this philosophy, I’m not sure it’s either fair or wise.”
A “common” approach? Unfortunately, it isn’t common enough
There was a glimmer of good news a couple of weeks ago. Watson Wyatt released a study that found the number of companies saying they were going to cut jobs decreased from the previous quarter. However, as the recession drags on, the pressure to manage labor costs will continue especially since employment is a lagging indicator to a recovery.
As I have written numerous times, a comprehensive cost/benefit analysis clearly shows that the benefits of layoffs are limited. Even more companies should be considering alternatives to layoffs that lower labor costs but retain employees. For inspiration, check out the Downsizing Flexibility Champions honor roll.
What’s “fair” when hard choices have to be made to save labor costs?
Professor Davenport uses Boston’s Beth Israel hospital’s decision to cut salaries to avoid layoffs as a cautionary tale. He believes it will potentially drive more valuable employees to better-paying hospitals across town. Would those same valuable employees be more eager to stay at Beth Israel making their full salary with a demoralized skeleton staff of nurses, lab technicians, and janitors due to layoffs? And are we sure the hospital across town isn’t going to experience the same challenges? Layoffs may allow some people to keep making the same amount of money, but the research shows (here and here) that the direct and indirect costs of those layoffs (here) are often far greater and undermine potential labor cost savings.
The difference between a “forced” versus “flexible” mindset
Okay, let’s talk about language and mindset. Isn’t it interesting how different labor cost savings strategies sound when referred to as “forced time off” as opposed to to “flexible alternatives to layoffs.” The concept of fairness also rests in whether or not you see reduction in your salary, unpaid vacation days, or a furlough, as something “forced” to be resisted, or something “flexible” that makes sense for a period of time given prevailing business realities.
Here’s something to consider…I agree with experts like John Kotter who say that we are in an era where rapid change, whether positive or negative, is going to be the norm not the exception. This will require more flexibility on the part of businesses to nimbly manage costs and resources. And people who work for these organizations will also need to be more flexible in how they manage their careers, work schedules, and pay. Perhaps in this environment the mindset that expects wage consistency all of the time, forever needs to shift. Periodic, hopefully temporary, “hair cuts,” as Professor Davenport calls them, may be necessary.
Finally, having a back-up or secondary source of income might not be such a bad idea
If indeed we are in a period where change is a constant, perhaps it is wise to consider developing a secondary source of income. Professor Davenport raises concerns that employees who “freelance, e-lance or moonlight to replace lost income” could find this other career more appealing, or do this other work during business hours. As workplace expert and author Marci Alboher, advises having a “/” career or one that has many facets might be a smart strategy in today’s world. It allows you to flexibly work with your employer while giving you an extra source of income.
So, while I appreciate that Professor Davenport raises red flags to consider, flexible alternatives to layoffs that lower labor costs while minimizing job cuts aren’t just a matter of fairness. They are a matter of creative survival not only in this recession, but in responding to future business challenges and opportunities that will require a flexible, rapid response by employers and employees.
What do you think? What role should the issue of “fairness” play in pursuing flexible alternatives to layoffs?