RIGHTSIZING IN A DOWNTURN
As companies face the stark realities of the current economic environment, many are having to consider the need to “rightsize” and the best reaction to this need. There are numerous potential solutions and each has pros and cons. The actions a company takes right now will become part of the company history; employees, ex-employees, suppliers and customers will remember how a company dealt with adversity. And the actions taken will clearly demonstrate whether the company stuck to its core values in tough times or abandoned them.
TAKE CARE OF YOUR “A’s” AND “B’s” IN A DOWNTURN
Every CEO faces alternatives regarding rightsizing his organization, and the typical options include:
- Reduce staff, e.g. a 10% reduction
- Reduce pay rates, e.g. a 10% reduction
- Reduce hours, e.g. a 32 hour week
But the real question is not what to do, but how to do it. Do we take action across the board, i.e. all departments and levels? Or are we selective? If we cut heads, what happens to the remaining employees’ workloads? What tasks or functions can we stop doing?
The typical thinking is that to be fair, everyone and all departments should share equally in the pain. The problem with that thinking is that if we have differentiated our employees per Bradford Smart’s business classic, “Topgrading”, we know we have “A” player stars and “C” players who cannot be successful in their current jobs. What message do we send our stars if we lump them in with everyone else? And what will happen when times improve and “A” players remember how they were treated? “A” players can always find new positions, and with their exodus comes the potential challenge of trying to lead a company with an over-heavy concentration of “C” players.
Classic management of human resources has often theorized that, “everyone is in this together and we want to be fair.” There are leaders who truly believe that differentiating among people (topgrading) is unfair, but read Chapter 3 of Jack Welch’s latest book “Winning” for one of the best articulations of why it is not only fair but critical in organizations.
There is a contemporary stream of thought that makes a strong case for unequal pay and perks, based on sustained, demonstrated performance as companies rightsize. All positions in a company do not have equal importance to achieving the mission, and all people do not perform at the same level. The idea that our best people should suffer the same pain as our poorest performers may seem fair, but it is illogical in terms of the people who are most important to achieving results. As Richard W. Beatty, who teaches human resources management at Rutgers University observes, “Look, there are an awful lot of long-term employees who are poor performers who have locked-in high salaries through cost-of-living increases.”
As companies develop plans for reacting to the current economy, individual employee performance and topgrading become critical decision points for how to apply actions in the right way. Actions taken now must not only consider the realities of today, but also preserve the company core, ready for profitable growth coming out of this economic downturn.
Some good reading includes:
Making the Case for Unequal Pay and Perks, Michele Conlin in BusinessWeek, March 12, 2009
A New Game Plan for C Players (HBR OnPoint Enhanced Edition)
“A Players” or “A Positions”? The Strategic Logic of Workforce Management