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As headlines show almost daily, many businesses are responding to the current economic downturn by laying off employees.

But according to Dave MacKay, President of Ceridian Canada, it is important for organizations to retain high-value resources like people during recessionary times, and cut low-value expenditures instead. "If you're sailing in rough seas," MacKay explains, "you trim your sails, do various things—but you still need all hands on deck to navigate through the storm. If you were sailing in adverse conditions, would you throw your crew overboard?"

Despite the economic storm clouds and high seas, leading organizations understand the importance of retaining staff in order to both maximize their current opportunities and position themselves for the future. According to MacKay, "You need to be constantly looking beyond the present and doing everything possible to invest in the future—because we will eventually move to a more favourable economic environment."

While some businesses downsize, many Canadian organizations are retaining their skilled workers, along with the institutional knowledge and experience those individuals possess. They are building a workforce that is adaptable, stress-resistant and is responsive to challenges—thereby positioning themselves for the economic turnaround and for future competitive advantage.

The Price of Reducing Payroll

What's more, there are bottom-line disadvantages to lay offs that are often overlooked or unanticipated. For example, research has shown that companies that laid off even a small percentage of their workforce subsequently experienced a higher turnover rate than companies that avoided lay offs; it's likely that employees quit in response to the downsizing in their organizations. As well, employees who survive cuts are apt to be less productive, with an increase in errors and a decline in customer service. Plus, in the wake of layoffs, employers find an increased workload from managing workers' fears about job security, retirement funds, and other related issues.

Add to that the cost of any necessary reorganizations, legal fees, etc., and the numbers don't necessarily add up. This is especially true when you factor in the cost of recruiting and training new workers in the midst of the "hiring war" that follows any recession—new workers who won't have the experience of the people you originally let go. According to Jim Thomson, VP Human Resources Operations at Ceridian Canada, "We all know we're going to come out of this. So, in terms of a long-service employee, you can either lay that person off and pay a year's severance and other costs; or you can keep them for a year and retain their skills and knowledge."

Strategies for Avoiding Lay Offs

That's why many organizations are avoiding lay offs by instituting many different cost-reduction strategies:

Hiring freeze: According to Hewitt Associates' recent Rapid Response survey of 192 Canadian companies, 47% of respondents had implemented a hiring freeze, or expected to in the next 12 months. Similarly, 21% reported that they would not renew contracts with contract/temporary workers.

Reduced work week: Various employers have kept their workforce intact by shortening their employees' work week. One Canadian publisher "right-sized" their organization and avoided lay offs by offering their people a four-day work week with a corresponding 20% cut in pay.

Similarly, a Canadian steel manufacturer, working with its two unions, developed a strategy that saw employees' work weeks reduced from 40 to 32 hours; but the strategy also included Employment Insurance benefits for the lost 8 hours. With the EI benefit, the resulting pay cut was much less than it would have otherwise been. Such programs—provided they are temporary, and are approved by the employer, employees and the Employment Insurance Commission—can last from six to 26 weeks and do not require a waiting period. And according to recent changes in the federal budget, the arrangement can be extended to a maximum of 52 weeks. As a result of the program, the manufacturer is in a position to immediately respond to a recovery in the marketplace.

Retraining employees: Many organizations have adopted the strategy of retraining employees for new roles within their organization—thereby avoiding both a lay off and a new recruitment.

Early retirement offer: Some companies have offered early retirement to their workers. While a viable strategy, it is not as widely accepted as others; while the initiative can help in the short-term, it is often at the expense of losing your most skilled and experienced individuals—workers whose expertise and knowledge is needed to ensure a vigorous post-recession recovery.

Extending time off: An offer of a five-week vacation, even if only two of the five weeks is paid for, is not only a cost-saving measure; it can sometimes be seen as a welcome opportunity—especially with younger employees.

Sabbaticals: For more senior, established, high-performing employees, a sabbatical can be seen as an opportunity to recharge, or acquire new training, experience or expertise that will pay dividends when the individual returns.

Maintaining Well-being, Trust and Engagement

While leading organizations are avoiding lay offs, they are also paying attention to the well-being of their workforce, as well as the critical task of maintaining trust and engagement during a stressful period.

According to Anthony Perlman, a senior benefits consultant with Hewitt Associates, "Employers will need to maintain the productivity of the employees they have. Employee health and wellness therefore becomes essential, not a perk." In fact, the majority of Canadian companies in the Rapid Response survey responded that they will be improving their employee health and wellness programs as opposed to cutting them. As well, approximately 80% of companies said they had no plans to change their medical or dental benefit plans. Instead of reducing benefits, employers are using their HR budgets wisely by reducing the cost of benefits expenses—for example, by reducing benefits insurers' administration fees, commissions and other outside supplier fees.

In addition, it is vital for employers to maintain engagement in their workforce during this time by maintaining trust. Honest and timely communication goes a long way toward ensuring the transparency that engenders trust—timely because economic conditions change from week to week; and honest because employees know how their organization is faring, and can tell when their employer is being less than candid. Furthermore, meaningful two-way communication can have many benefits other than simply keeping employees informed. Companies have implemented cost-cutting ideas generated by workers; more importantly, employees are likely to take ownership of the challenge and remain engaged with their organizations when they are involved in finding solutions.

The result of these efforts is an organization well-equipped to weather the economic storm and resume course once the dark clouds disappear.

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