Lots of companies are downsizing and laying off substantial parts of their work forces - even among the most “secure” and “respected” companies, things are changing very rapidly.
Recently I learned about a 2.500 people company having to cut 10%. This was achieved by going through each division, department, section, and team and picking out 10% of the employees. One the day it was done, the atmosphere was horrible - everybody was scared of being picked and no-one (except management) really knew what was going on. The deed is done and life goes on for the company and the (ex-)employees.
Might there be a different approach to the layoffs? Cost cutting is (probably) necessary in most cases, but does cost cutting have to equal cutting staff?
..does cost cutting have to equal cutting staff (..) might it be possible to cut 10% of wages instead?
Over the past years we have experienced an economic boom with increasing everything - food prices, house prices, gas prices … and salaries. A lot of these increased prices are on the way back down again (houses, gas, food, etc), but salaries seem to stay up there - once you have a certain monthly salary, it is not likely to decrease.
In a situation where a company has to cut 10% of (employee) costs, might it then be possible to cut 10% of wages instead? Imagine a really committed and tight-knit team with a engaged, caring, and conscientious head - could he “sell” such an idea to his team?
For the company, it makes sense to lower salaries instead of laying off. You achieve the necessary cost cuts while maintaining your staff - and thereby all the skills, abilities, and resources you have painstakingly gathered and trained. You don’t drop any projects or ideas on the floor and operations and developments are not interrupted.
It also makes sense for the team: You maintain cohesion and the (hopefully) positive atmosphere, and things can proceed uninterrupted, and possibly even with more energy, urgency, and efficiency than before.
For the individual team member, i.e. one of those potentially layed off, it is a matter of taking a known pay cut versus taking the chance of being layed off. Is there a term for this from game theory? Not a exactly a prisoners dilemma, but possibly related (as you can tell, I do not know much about game theory). If you are part of a good team and like your colleagues, and with the above mentioned wage increases, you might chose the pay cut.
This different approach does not have to be applied across the company. The company might let the individual manager decide which model to chose for his or her team. Or, you might even combine layoff with salary decreases (e.g. layoff 5% and have the remainder take a 5% salary cut). In any case, the idea might be worth considering.
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With the massive amount of layoffs that have been occurring recently, I have thought the exact same thing. There are a few problems with this, however. Obviously this might work in a single company. But if you apply this to a macro level and to all the companies that are laying off people, it simply doesn’t work. Lower salaries means a decrease in living standards. It’s deflation, which is extremely undesirable for a country. I do, however, think that many people could live off a much lower salary if they lived more modestly, this is an unrealistic expectation to apply on a macro level in our current materialistic-orientated society.
January 30, 2009 @ 08:51
A very insightful comment Martin, and I think you may be correct that it probably will not work on a macro economic scale as it may cause lowered living standards and deflation. However, if 10% of a country’s workforce is all of a sudden without employment, wouldn’t that also cause decrease in living standards and deflation? I believe this might be even more undesirable for a country, as having a very large number of people unemployed (and thereby not “producing” anything for the country) results in higher social costs and less productivity. By lowering salaries instead, the workforce remains productive and does not draw public money - in my view, this seems a much better state of affairs.
Disclaimer: Please bear in mind however, that I have no economic background or training.
January 30, 2009 @ 10:59
http://www.personneltoday.com/articles/2009/02/12/49370/kpmg-staff-back-four-day-week-in-bid-to-save-jobs.html
Looks like KPMG has had similar thoughts they are seemingly moving to a four-day work week to cut costs and avoid redundancies.
February 12, 2009 @ 10:23