Benefits and Compensation

Be Up-Front When Communicating Pay-Cutting Strategies

There was a popular song in the 1970s telling listeners that the hardest word to say is “sorry.” You may agree with that, generally speaking. But for those who are less musically inclined, and those whose companies are suffering in the current bleak economy, different words likely come to mind: Words like “layoff,” “furlough,” or how about a two-word phrase, like “pay cut”?

Certainly these are among the most difficult things anyone, from employees through management, has heard lately. Saying them isn’t much easier. Jennifer Benz of Benz Communications is all too familiar with these terms and has helped some of her clients weather the storm. We spoke with her recently about the best ways to tell your employees they’re facing such difficult news.

Open, Honest, Frequent Communication

“I think the first thing companies need to do is to be very honest with their employees about what’s going on,” Benz says. “Employees understand. They are smart, and they know what’s going on in the economy. More than anything else right now, people appreciate open, honest, frequent communication. The worst thing a company can do is to wait to talk about things until they think they know all the answers and have every detail buttoned down. That creates an atmosphere where “something” is going on, and everybody knows it, but nobody is saying what’s going to happen. It creates a lot of tension and anxiety.”

What if you don’t really know how everything will play out? Shivani Ganguly, an HR leader in a high-tech company in San Francisco with 75 employees, has taken Benz’s advice. “In February 2009 we put most of the company, with the exception of about 12 people, on furlough,” she says. “It has turned out to be much longer-term than we anticipated. We originally announced that it would be only a couple of weeks, but we didn’t really know exactly what was going to happen.”

However, what they did know, they told employees. “The biggest thing is to be as clear as you can,” Ganguly says. “People didn’t know what “furlough” meant, so we were as clear as we could be about what it really means and how it would impact people. We let them know how it would affect their compensation, their benefits, whether or not they could come in to the office. There were many questions we hadn’t really anticipated, but in talking it through with Jen, we were able to think through some of those questions before we actually got them.”

Enlist Help If You Need It

Of course, in a cost-cutting situation paying for advice may seem like a bad investment. But the company’s goal, says Ganguly, is to return stronger in the long run. Preserving relationships with valued employees is a huge part of that, she says. “We’ve only had three people out of the 75 who have found new jobs and are working at different places. I think that’s a testament both to the fact that we have a very tight-knit group and community here and also that the job market is not moving very quickly right now.”

Ganguly recommends that before you communicate a difficult message, you understand the administrative details. Do your benefit plans allow you to keep employees covered? Are employees eligible for unemployment benefits in your state? These are the kinds of questions employees will need to have answered, and if you know the answers in advance, you will be in a position to be much more helpful to them and to your remaining staff.

Keeping employees in the loop is much more difficult when they are not at work, but Ganguly says it is worth the effort. “You have to communicate with people regularly and give them as much information as you can, even if there isn’t a big change from week to week. We’ve been sending out emails. You could have managers call people. Just touching base with them once a week, letting them know the status—when we might be able to bring people back, what we’re doing to bring them back, that kind of thing.

“When people are in the office, that kind of thing percolates more naturally. But when nobody’s in the office, people don’t know what’s going on, and they feel very disconnected.”

‘Cascade of Communication’

Benz emphasizes that the messaging should come from the highest level of the company. “The first communication should come from the CEO. It needs to be very personal, very real. Then make sure that managers and supervisors have the tools to have one-on-one conversations with their employees. We call it a “cascade of communication”—it should go from the CEO to the leaders, then from the leaders to the managers, then the managers to the employees. You just have to make sure the leaders are saying the same things as the managers are in their one-on-one conversations.”

The authenticity of the message is important, and you can credit younger workers for demanding it, says Benz. “Social media and the ways the Millenials interact have been kind of pushing the envelope to make things much more personal and more authentic,” she says. “People expect really clear, open communication, and they expect it to come from a person and not a faceless corporation. If you’re a company, and you’re making hard decisions, your employees are going to expect that the leaders are holding themselves accountable for that and are talking from their personal perspective about what’s going on, not in some distant, third-person way.”

Common mistakes in communicating the hard message range from being clumsy to having a poor strategy, Benz says: “On the clumsy side, a lot of companies communicating salary reductions or furloughs don’t go through that extra step of really breaking down exactly what things mean and exactly how the employee will be impacted. You shouldn’t make any assumptions that they understand the benefit programs or how your current salary structure works. You have to be very clear and very thorough in how you communicate. If you don’t, the impact will be that people are frustrated. It hurts productivity because they are spending more time trying to figure out what’s going on.”

Take the Long View

A big strategic error is taking a short-sighted view, Benz says. Harsh or inconsiderate treatment of employees could mean you’ll have a bigger hill to climb when the economy improves, and you want to go back to full capacity.

“Companies that treat their employees badly will have a harder time keeping and attracting the right talent,” Benz says. “I believe that the companies who do a good job taking care of their people and who really shine during the tough times are the ones who are going to keep the talent and keep the best people when the economy turns around. You don’t want to be the employer that everyone is dying to get away from as soon as there is a job offer. A lot of companies are putting themselves in that position.

“There is a huge distinction between the actions of companies who are really mindful of their employees and the ones who are really only looking at the short-term bottom line. People won’t forget that,”  Benz concludes.

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