Cutting costs, not slashing jobs

2008

Instead of making the sort of mass job cuts that characterised previous recessions, many organizations are taking a more intelligent and nuanced approach to cutting their costs – and taking care, too, not to alienate their top performers.

Nevertheless, as a new survey of more than 450 U.S. companies by professional services firm, Towers Perrin, highlights, that's not to say that employers are not taking a long, hard look at their compensation and incentive programs.

Yet in contrary to past economic downturns, the focus on mass workforce reductions has been replaced by more targeted, strategic workforce reductions and cuts in other discretionary spending.

"The commitment to the retention of key talent is a significant shift from past national recessionary periods, when a slash-and-burn mentality reigned," said Ravin Jesuthasan, managing principal in Towers Perrin's Chicago office.

"Companies are entering this period with leaner workforces and the knowledge that across-the-board mass layoffs can create significant long-term problems."

In fact, the study found that two-thirds of companies believe a significant reduction in head-count is somewhat or very unlikely, while fewer than half (46 percent) think a more targeted head-count reduction is probable.

Instead, half the companies questioned said they are somewhat or very likely to keep a tight rein on pay increases, while almost four out of 10 are considering a reduction in annual incentives and bonuses.

Other areas that are likely to see cuts are Christmas parties and other employee events, travel and entertainment, and – perhaps foolishly - training budgets.

Meanwhile, the survey also revealed that organizations recognize the importance of rewarding talent and honoring bonus commitments despite the economic conditions they are facing.

Around half of those polled said they are concerned about turnover of their high-performing and business-critical employees as a result of the way the organization handles the economic crisis. As a result, many are taking a proactive approach, with three out of 10 considering cash retention awards and four out of 10 considering targeted salary increases to help retain and motivate top performers.

"Companies appear to have the experience, tools and skills to address these economic challenges in a responsible and rational way," Ravin Jesuthasan said. "The strategic and surgical approach to cost-cutting revealed in this survey indicates that organizations have learned from prior periods of economic crisis."

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