Workforce Compensation Trends and Hirelabs Advisory
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Click here to read the original article on Compensation & Benefits Day 2009
Assuming that a company is not overspending on workforce costs, one of the first questions that comes to mind is “…at what point do the CFOs decide to reduce costs?”
Since the business environment isn’t what it used to be, how companies need to re-think what they are spending on their workforce has been the question on many a CFOs’ minds.
First things to consider are the current business environment. Every company is impacted by the macro environment, this being one of the most important determinant in how a company would perform. The situation demands for a new way forward.
The second thing to consider is the risk and magnitude of the macro environment impact on the business.
At the first signs of the impact, the company will need to assess how it’s customer interaction has been affected. Are the prospects slowing their engagements with us due to our internal revisions of forecasts and budget cutting? Are there any delays to new deals based on the revisions?
If the companies find themselves facing these issues, there needs to be a revision of the forecasts for the business. Then a prudent action will need to be taken into account in it’s planning – a more conservative top-line scenario will be the first way to go without sacrificing performance.
So where do the workforce costs come in?
It starts with a top-down target setting approach. They need to work out what top-line they need to count on, and then they need to determine what happens to the cost structure. Once that is understood, then they need to know what to do about it.
A discretionary spending is the first advice. That would enable a review of all the costs. If anything doesn’t provide an immediate ROI, it should be considered decayed immediately. Nothing should escape.
Second advice is to focus on headcount. But the discretionary expenses need to be exhausted so as to lower any impact on the workforce. With the headcount, focus needs to start from the bottom performers. The lowest 10% or so. They just tend to have a negative impact on the quality, or the image of the company. What is known is that companies are able to make those adjustments quite easily. Only when they first know whom to adjust. Important thing being how to do it right. The right tools & processes need to be in place. No mistakes can be made here. No mistakes must be made here.
What characteristics are most important? Who can contribute to the company more positively? It takes a lot of work, and a lot of factors come into play. It takes discipline and process to help do that.
This all really needs to come from the top. What is important? To mould the organization into form that would really work in the future. This decision can’t rely on managerial bias. It is not easy. But the macro environment requires you to do that.
So what is considered discretionary from a necessity? And what growth model can a company truly rely on during re-structuring?
It really blows down to where the company is now, where they want to go? And what skill sets they need to get there?
It is obviously how a person has performed in the past. It has to be the sets that are in need not only during the re-structuring phase, but also during the rebound and the sustenance phase. The management team need to take all that and apply to the workforce. That is the best way to go about it in a large workforce.
So don’t start from the workforce. Start by understanding what the strategies will be, then adjust the workforce accordingly.
So what are the best creative ways to do that?
Some companies take their top-down approach and exercise that tool when it comes to workforce reduction. It is best to understand the difference between what is discretionary and how dollars need to be allocated. The best creative idea is to take bottoms-up approach – getting ideas and feedback from within the workforce. It is the feed on the streets, the insights on how to go about it. They are the frontline; they would know how the company could be better off by cutting on unnecessary operational processes. A very powerful effect of doing it this way, is that it makes it that much more acceptable to take that action. The value in the entire company is reconditioned through the employee base by getting it straight from them on how the company can be successful in getting across this bridge.
Leverage the employee, and invite participation and control in the organization. Thus, by enlisting them in the process, they are given control in the success of the company. Since the worst thing a company can do is take the peanut-butter approach to cost cutting. If that is done, then a particular interest of the manager is being obeyed without giving thought to what the workforce is actually capable of doing and helping the company out of the tough times.
By making sure that the strategy is opposite to the above model, then a little time given to the workforce opinion will mean a stronger rebound soon after the downturn.
The macro-environment changes can be dramatic, but it doesn’t take a lot of time to make sure some process is in place to help you identify what is important and who gets behind that rebound. Identify what tools you can get to save that time and unnecessary work to make it a smooth and efficient transition. It is imperative when you are talking about the future of the company.
So what would be the key for an HR person to engage a CFO to get to think about their workforce more systematically, to get their attention?
One of the best things they can do is to philosophically adopt the idea that they are partners to the business machine. Partner to the CFO to make it better. Focus on the performance of the organization first, and then the people. It has to be through the people that any organizational success can be measured. But they will find that the HR is much more involved in the operations of the business if they think and act according to that principle. If they can provide a partnership solution to the C-suite on what they ought to do with the workforce in order to get the organization to perform better by getting the right people to the right positions, by making sure the workforce is the right size, of the right skills, in the right deployment, and more insight into the business is just as important, they can make this a win for the company. It’s a real win situation for the HR professionals if they can do that. And more so act like that. They will have more marketable opportunities; they will add more value to the organization, even end up leading best practices in the market.
To summarize, it is about where the company needs to go. The strategy is important obviously. To adjust accordingly. Start on discretionary spending. Take a top-down approach, then take a bottom up approach – let everyone participate.
Then take a look at your personal cost, which tends to be about 70% of the total operating cost. So by optimizing those costs through established processes & tools is just credible to making sure that the company is doing whatever is necessary to perform to their best in this kind of an environment.
Saleem Qureshi, President & COO at HireLabs Inc., moderated a Fortune 500 panel discussion on workforce compensation & benefits on June 29, 2009. For workforce compensation strategies and HR consultancy requirements, he can be contacted on +1 (650) 492 5007.
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