News / Cutting Staff At Your Peril
Oct 31, 2008

In troubled times, recruitment freeze is quite common since the senior management believes that it makes business sense to control costs. This sends a wrong signal down the organization. I recall a friend narrating an incident at his firm in 2000 when the IT industry was going through a rough patch after the dotcom bust.  The CEO was asking employees to bear with him the delay in salary revision and make sacrifices so that the shareholder’s interests are met. One cheeky youngster said: “Sir, during good times, shareholders are taken care of much more than required. So, does it not make sense for the shareholders to make sacrifices so that the employees feel that the organization is with them in times of need.” The CEO abruptly ended the meeting.

People are the most important and expensive asset in the IT business and hence it makes sense for the management to cut employee cost first before cutting costs elsewhere. However, an individual employee finds this difficult to comprehend. He is not able to understand how a company – which makes profits of over $1 billion a year - can overcome a drop in profits by holding back monetary benefits. The organization usually compounds this agony by declaring dividends to shareholders. What alienates the employee is that unlike in the West, Indian IT companies pay only a month’s severance package along with the final settlement. The global norm is two to three month’s severance pay apart from extensive out-of-placement counseling and continues health insurance for a year more.

In early 2000, I was working for a small organization with 400 people. In an economy hit by global slowdown, it had 100 non-billable resources. It was difficult for the firm to hold on to these resources as costs kept mounting. It was a no-go situation and the company was on the verge of retrenching these resources. It was then that the organization decided to take all staff into confidence, telling them of the business compulsions and seeking their advice.

The solution provided by the employees was a 20% salary cut and with the consequent savings, hold on to the 100 resources. This was a masterstroke. The organization was able to restore the 20% salary cut within 6 months. Another sore point with IT employees is the lack of fairness. Of late, IT organizations have made it mandatory for all staff to serve a two month notice period before quitting. This, employees believe is done to discourage them from leaving. When organizations want to downsize the employee is given no more than 24 hours to pack his bags.

The other way by which downsizing is done is by easing out non-performers. I have read statements that the bottom 5% have been asked to leave since their performance was below par. But when you ask employees they will openly tell you that employees who have been asked to leave are the “non-billable” resources.

In all this, the HR is at the receiving end. It has to empathize with the employees as well as put into effect the organization’s call for control-ling costs. So, what can the HR function do?
• It should partner with line managers in executing strategies.
• Be a voice for the employee in raising their concerns with the senior management and find effective solutions.
• Be a voice for the organization by articulating method of improvements and thereby enhancing employee productivity.
• Compensate employees for their quality of output rather than the time spent at work.
•    Do not take any decision which would have an adverse impact on a section of the employees without taking all the employees into confidence first.

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