News & Events News Guidelines for organisations facing big decisions During the last recession, UK companies came up with innovative ways to retain staff while reducing costs, in an attempt to maintain a strong workforce for when recovery came. As the IPA stated in June 2009, most employees understood the impact of the recession on their organisation, and many employers raised the quality of their communications with staff to ensure that engagement levels held up during those challenging times. The current Coronavirus crisis is different in many ways from the last recession but there are a number of lessons that could be re-visited. Our five key messages to organisations are: Don’t make hasty decisions or irreversible decisions without thinking them through carefully Don’t lose staff unnecessarily Hold the difficult conversations and keep staff fully informed Find out what views and ideas staff have Leaders need to set the example These are explored in more detail: Avoiding Hasty or Irreversible Decisions It is not surprising that the first cost-cutting option that may be considered by organisations is to make redundancies. Most staff in the UK will, in fact, believe that redundancies are the only option considered by their senior managers and, even when that is the most appropriate course of action, staff will have no idea that anything else had been looked at. The reality is that, if you can keep skilled staff, you won't need to re-recruit later when the economic climate improves. Re-recruiting is expensive, in terms of advertising, management time, induction and training costs. Making staff redundant is also not free of costs - if employees have two years’ service or more, you will need to pay statutory redundancy pay or the employee's actual pay, whichever is lower. Employees aged 43 or more are entitled to more than this. You may also have a contractual redundancy scheme which provides for more generous payments than the statutory scheme. The impact on staff that remain can be high - staff may feel unsettled and morale may suffer. In 2009, more than half of employers surveyed by the IRS noticed the negative effect of redundancies in their workplaces. The research, which surveyed 266 organisations, found that 58.8 per cent of employers had seen a negative effect on the morale of the remaining staff. The results of the survey came as employers tried to find ways to avoid compulsory redundancies. Toyota announced that month that it is would cut base pay and reduce working hours by 10 per cent to cut costs and avoid redundancies. A Toyota spokesman said, "Following extensive consultation with our employee representatives, and with input from all employees, it has been agreed that the best way to secure long-term employment is to temporarily reduce working hours and base pay by 10%. We believe the measures we have announced give us a greater opportunity to maintain employment through this difficult period." The ability to take a step back and view the current crisis in a wider context will be a vital part of strategic decision making and time will need to be taken to explore a series of key questions: What is our core objective? What options will potentially meet that core objective? What risks are involved in the short and long term? What are the potential knock-on effects of each option? What are the potential costs of disengagement of each option? What will happen if we do nothing? How are we going to consult and communicate with all of our staff? Senior managers need to assure their staff that, like everyone else, they do not want to go through the distressing process of redundancies, if it can be avoided. Don’t lose staff unnecessarily There are several options that organisations can realistically consider: Access government support – before even considering changes that might affect workers’ incomes, companies should consider the full suite of government financial support available that may be able to cover their costs without needing to reduce jobs, hours or wages. Foremost among these is the Coronavirus Job Retention Scheme, under which all UK employers with a PAYE scheme will be reimbursed 80% of wage costs, up to £2,500 a month, for staff who are ‘furloughed’ – i.e. kept on payroll but asked to stop working. Furloughing workers is a change in their employment status and as such may be subject to negotiation with the workforce – however in most cases this change will be more advantageous to workers than the other changes below and so should be considered before any other options. The government has offered to backdate this scheme to 1st March once it is up and running in the coming weeks, but to access it employers should be taking actions to designate affected employees as ‘furloughed workers’ immediately. Even where workers have already been informed they are being made redundant, employers should urgently reconsider whether they can cancel the redundancies and instead redesignate affected staff as furloughed workers. Employers with large numbers of staff on zero hours or minimum hours contracts might need to consider how the rules for the scheme could allow them to continue paying some wages to those workers, rather than simply taking the ‘easy’ route of not allocating any hours of work to those workers. For more details on the full range of government support packages as they are announced, including the Job Retention Scheme, companies should regularly check this page for updates. Cut pay - if you need to, you could consider negotiating a pay cut with employees. This cannot be done without the express agreement of each of your employees and without a really clear business case. An organisation would also need to specify whether the pay cut was intended to be permanent, or for a specific period. If an organisation is considering this route, the pay cut would need to apply at senior levels too. Reduce hours – organisations could agree with their workforce, or some individuals, to reduce hours (and therefore pay as well) for a specific period. Again, this is not something that can be imposed, unless there is a contractual right to reduce hours. Organisations would need to discuss with employees the reasons for the proposal, how long the reduced hours would last and would need to obtain the agreement of each employee. Part-time working may well be preferable to being redundant, but organisations will need to make sure they confirm what is agreed in writing, as a temporary or permanent variation to the contract. Organisations also need to bear in mind possible impacts reduced hours might have on reducing any equivalent support from the Coronavirus Job Retention Scheme. Offer sabbaticals - you could offer a period of unpaid leave. Some employees may even welcome a period of time off, knowing that they will still have a job at the end of the period. Redeployment - can you use the recession to develop the capacity and skills of your organisation? Could you move staff from quieter areas of your organisation (if there are any!) to cover needs elsewhere, to help keep staff motivated and save the costs of recruitment? Consult with your staff team and see what is possible. Ask staff to take a long holiday – this might well suit a number of people. In 2009, BT asked staff to take a 75% pay cut in return for a long-term holiday. BT said they would give staff an upfront sum of 25%of their annual salary in return for taking the whole year off. Staff were also given the option of a one-off payment of £1,000 for going part-time. Holding the Difficult Conversations It is more important than ever to ensure all staff are kept fully informed about how their organisation is planning to deal with the current crisis and what its longer-term thinking is. This is more of a challenge with so many staff working from home but this need to be a serious priority despite this. There is an increase in uncertainty and anxiety amongst people and the people cannot be left to fill the information gaps in themselves. There are all sorts of techniques for holding difficult conversations but the most important is to prepare thoroughly and explain the answers to the seven questions outlined in the previous section. The danger of information gaps are serious in the current circumstances. When people are working from home for, what could be, a lengthy period of time, their feelings of isolation will increase and the need for factual and consistent information will become critical. Senior managers are often hesitant to engage in these types of conversations because they are not sure how to approach their employees. Often, leaders fear the conversation will not go well and employees will become upset. The fact is that some will but they are still entitled to know the facts and to judge the quality of the decision-making process. Whatever options that are being considered, organisations need to make sure they consult effectively with staff through their representatives and by direct means. During these extraordinary times, organisations need to consider their long-term reputation and responsibility to act as a fair and sympathetic employer. Line managers will face more pressure in trying to manage their staff effectively while still maintaining the operation as much as they can. They will need to be equipped to deal with difficult situations and given support when mistakes are made. Find out what views and ideas staff have It is always important to ask the views of your staff, staff forum or trade union as they may have some good idea about how the organisation could run more efficiently and save costs. Involving them also demonstrates that the organisation values their thoughts and getting them involved will help to maintain engagement and commitment. In times of crisis, the value of their input cannot be overestimated. If staff are fully informed, they will be more innovative, more creative and more willing to share ideas. In May 2009, workers at Honda’s Swindon plant voted in favour of a 3% pay cut for 10 months in an attempt to safeguard 490 jobs. In return, workers received a bonus of six additional days’ leave. Managers’ pay was cut by 5% at the same time. This happened because the information was comprehensive and staff were fully aware of the alternative options. Staff have proved adept at creating new shift patterns when the core business objective was explained to them. Over the last twenty years, the IPA has documented a large library of case studies where staff have reacted to challenges with positivity and a mindset committed to solving problems when given the chance. Leaders need to set the example The current situation is unprecedented, and people are looking to their leaders for information, clarity and honesty. It will also be important for leaders set examples to their staff and will need to be willing to accept the same or similar sacrifices they are asking their staff to accept. Looking at the airline sector, who have all been hit hard by the crisis, Boeing’s Chief Executive and Chairman have both agreed to forgo all pay until the end of 2020, as has the Chief Executive of Qantas. In contrast, British Airways pilots have all been asked to take a 50% salary cut before any indication that their Chief Executive was willing to cut his own salary (he later agreed to forgo it for two months) and when the CEO of parent company IAG had only offered a 20% cut to his own salary. Unless top executives lead by example they will not secure buy-in from staff for the very difficult sacrifices they are asking people to make. When the crisis eventually passes, such incidents will not be easily forgotten or forgiven and will make recovery much more difficult. In the 2008 financial crisis many workers were asked to make tough sacrifices with the promise that they would be rewarded once the crisis passed; such promises were by and large not fulfilled, as median wages stagnated for years after the crisis, while the remuneration of top executives bounced back very quickly and have continued to grow since. Workers will be much less likely to trust similar promises again unless corporate leaders can demonstrate through deeds as well as words that this time will be different. Extraordinary demands have been placed on business leaders and they are finding out that what they during a crisis is not a predefined response plan but behaviours and mindsets that will prevent them from overreacting and to help them look ahead. Some have already realised that they will need to relinquish the belief that a top-down response will engender stability and, as a result, must also empower others to direct many aspects of the organisation’s crisis response. If there is anything more that IPA can do to support you and your organisation at this difficult time, or if you are just looking for advice on how best to talk to your workforce about the issues in this article, please get in touch via [email protected] .