Saturday, August 31, 2013

Redundancies should come with a pay rise

As far as I can see, there is only one reason why a company should ever make redundancies.

Due to some unforseen circumstances the business has become larger than the market conditions can support and it needs to shrink in order to bring it back in line.

Every other reason is simply a minor variation or a consequence of that underlying reason.

Therefore, if the motivation is clear, and the matter dealt with successfully, then once the redundancies are over the business should be "right sized" (we've all heard that term before), and it should be able to carry on operating with the same values, practices and approach that it did prior to the redundancies.

If the business can't, then I would suggest is that it is not the right size for the market conditions and therefore the job isn't complete.

OK, there may be some caveats to that, but to my mind this reasoning is sound.

In detail:

When you reduce the headcount of the business you look for the essential positions in the company, keep those, and get rid of the rest.

Once the redundancies are finished you should be left with only the positions you need to keep in order to operate successfully.

It's tempting to think that you should have a recruitment freeze and not back-fill positions when people leave, but if someone leaves and you don't need to replace them, then that means you didn't need that position, in which case you should have made it redundant.

Not back-filling positions is effectively the same as allowing your employees to choose who goes based on their personal motives rather than force the business heads to choose based on the business motives.  This doesn't make business sense.

So, you need to be decisive and cut as far as you can go without limiting your ability to operate within the current market conditions.

To add to that, recruitment is expensive.  If you're in a highly skilled market then you'll likely use an agency. They can easily charge 20% of a salary for a perm head.  On top of that you have the cost of bringing someone up to speed, at a time when you're running at the minimum size your market will allow.  Plus there's the cost of inefficiency during the onboarding period as well as the increased chance of the remaining overstretched employees leaving as well.

The upshot is that you really can't afford to have people leave, it's so expensive that it jeopardises the extremely hard work you did when you made the redundancies.

There's a theory I often hear that you can't have contractors working when the perm heads are being marched out.  That's a perfectly valid argument if the perm head would be of long term value to you and can do the job that the contract head can do.  But if you need the contractor to do a job that only lasts another 3 months and that person is by far the best or only person you have for the job, then the argument just doesn't stand up.  Get rid of the perm position now and use the contractor, it'll be cheaper and more beneficial to the business in the long run.

OK, that's maybe not the most sentimental of arguments, but why would you worry about hurting the feelings of people who no longer work for you, at the expense of those that still do?

It may even be worse than that - you could be jeopardising the jobs of others that remain by not operating in the most efficient and effective way possible.

Another prime example is maternity cover.  If you need the person on maternity to come back to work then you almost certainly need the person covering them. If it's early in the maternity leave then you'll have a long period with limited staff, if it's late in the leave then you only need the temporary cover for a short period more. Either way you're overstretching the perm staff left to cover them and risking having them leave.

Finally, there's the motivation to ensure that the business that remains is running as lean as possible. That costs are as low as they could be. The temptation is to cut the training and entertainments budget to minimum and pull back on the benefits package.
As soon as you do this you fundamentally change the character of the business.  If you always prided yourself on being at the forefront of training then you attracted and kept staff who valued that. If you always had an open tab on a Friday night at the local bar, then you attracted people who valued that.  Whatever it is that you are cutting back on, you are saying to people who valued it that "we no longer want to be as attractive to you as we once were; we do not value you quite as much as we did". This might not be your intention, but it is the message your staff will hear.

I put it to you that the cheapest way to reduce costs after redundancies is to be completely honest to the staff you keep. Say it was difficult, say that you're running at minimum and that a lot will be expected of whoever's left. But tell them that they're still here because they're the best of the company and they are vital to the company's success.  Let them know that the contractors you've kept are there because they're the best people for those positions to ensure that the company succeeds.  Tell them that the contractors will be gone the moment they're not generating value or when a perm head would be more appropriate.  Make it clear that the company is now at the right size and the last thing you want is for people to leave, because you value them and that if they left it would damage your ability to do business.

Then give them a pay rise and a party to prove it.

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