I have learned a lot about the role of HR in recession, cost-cutting and other organizational impacts over the years. This is the second of a two-part article on the role of HR during hard economic times. It is especially for those in HR who might be facing a recession for the first time in their careers. While it covers several key topics, it is not exhaustive. I’m looking forward to hearing from other who may have similar experiences or different perspectives!

Start before a recession begins

In the first part of this article, we looked at ways HR can begin contributing to a recession response. The CHRO and HR Business Partners/Managers have a unique role to play to help balance the need to meet company targets while furthering company values and employee experience. Starting with the company strategic plan and a team including finance and strategy can help formulate actions to mitigate the risks. Involving people managers and employees early on will help manage anxiety while supporting employee-led actions.

If you must reduce headcount…

But what if simple cost-cuts aren’t enough? Referencing the strategic plan and future workforce development are even more critical if you must consider impacts to headcount. Should you take an x% reduction across the entire workforce, or take deeper cuts focused in specific areas? My experience is that the second option is more effective in maintaining the company strategy and reducing overall impact to the employees. As the scope of impact becomes clear to senior leadership, detailed planning is the next step. Respect and integrity are core to managing this process.

It takes a lot of preparation for a reduction-in-force (RIF) to go as smoothly as possible. After identifying the impacted groups and timing, making decisions on specific people comes next. It is critical to have clear, documented criteria for people selection. Potential criteria can include performance ratings, specific skills, years of service, or other relevant points. This helps avoid criteria that is unimportant or even illegal, like age (at least in the U.S.). Consultation with unions or Worker’s Councils may be required. Have your employment lawyer review the process and selected exits to prevent adverse impact and reduce the chance for litigation.

RESPECT

The world has recently seen some high-profile examples of how NOT to announce a layoff. In one example that continues to get worse, mortgage lender Better.com informed 900 people of their separation during a group Zoom call in December 2021. Then in March 2022 they confirmed they laid off additional employees and accidentally notified them via their payroll app. At best, examples like this show companies that do not understand the impact of these actions to all employees. At worst, it shows companies that just don’t care.

No one likes hearing they no longer have a job, but everyone wants to be treated with respect in the process. The best practice is to have the first conversation between the manager and individual impacted, with someone from HR present. This requires a lot of logistics to schedule meetings, produce documents, arrange additional security, and prepare managers. Always have a short script prepared and have the line manager lead the discussion, with HR available as a witness as well as support if needed.

Support your people managers

Don’t underestimate the importance of training managers in advance! This may be the first time they have ever had to let someone go. Even if they have done it before, the reaction from the impacted employee can vary significantly. There are online resources available that give video examples of reactions and ways to deal effectively with them.

Realize that people will be processing financial impacts as well as emotions like loss, grief, and/or anger.   Being upfront about next steps, giving ample severance and notice, offering references, having EAP providers on-site, providing outplacement support or job training…all of these can help people with the transition. Don’t forget to leverage federal, state, and local resources that offer additional support. Just remember that people pay attention to how co-workers are treated! The respect you show (or don’t) will be clear. Remaining employees will see how you deal with people in a tough situation. This will also show up in Glassdoor or other public forums, impacting your employment brand.

Don’t forget the “survivors”

It’s also important how you treat the people who are not directly impacted by the reduction. Bringing teams together to let them know what has happened and next steps is critical. ‘Survivor’s guilt’ is real, as is the potential for higher workload to make up for fewer hands. No matter what you CFO says, I don’t ever recommend reducing or eliminating planned merit/pay increases. Controversial thought…you may consider to lay off a few more employees if that means you can keep up with raises for the remaining staff.

It is key to keep the remaining team motivated and see that things will not stay this way forever. There is a higher risk that top talent may get nervous and look for opportunities elsewhere. Consider using motivation or stay interviews to see what is important to each individual employee. A personalized retention strategy that involves stock, additional bonus/training, and/or career progression can help actively manage the risk for people you don’t want to lose.

HR Leading with integrity and respect

In summary, I see HR’s biggest role in a recession is to uphold Integrity and respect. They must consider both the company impact and employee wellbeing in the path forward. Tough decisions WILL come. Difficult trade-offs WILL come. HR can hold the space to make sure the company is being as honest as it can about what is going on, and at the same time giving respect to all parties involved. It is a difficult situation to navigate, yet the company and employees can come out stronger at the end. Even impacted individuals can use the situation as a fresh start, even if not the way they would have chosen to go about it.

If this is your first time as an HR leader going through something like this, please reach out to someone who has done it before. I can promise you will learn some things that will help you, your business, and your employees.

I have learned a lot about the role of HR in recession, cost-cutting and other organizational impacts over the years. This two-part article is especially for those in HR facing a recession for the first time in their careers. While it covers several key topics, it is not exhaustive. I’m looking forward to hearing from other who may have similar experiences or different perspectives!

Where were YOU during the last recession? For the “Great Recession” beginning at the end of 2007, I was Director of Business Transformation for Philips Consumer Electronics, working out of our headquarters in Amsterdam. In my previous role as a program manager in our North American region, I supported HR in a significant business model transformation and organizational restructuring. These experiences working alongside HR professionals eventually led me into formal HR roles. I later served as a Senior Director of Organizational Effectiveness and a Vice-President of HR (business partner) in our Healthcare sector. Being part of a publicly traded company undergoing multiple overlapping transformations and market ups and downs gave me a ‘baptism by fire’ in this area.

Don’t wait!

As of the start of June 2022 we are NOT in a recession. However, economists see the risk for a recession in the coming year or two about double what it was just three months ago. I can guarantee your CEO and CFO are already thinking about what steps to take regarding a potential recession. If you are the CHRO and haven’t been part of those conversations, now is the time to take your seat at the table! The voice of HR, backed by more data than ever before, can help balance the need to meet company targets while furthering company values and employee experience. Taking an active role with the leadership team in early discussions can help set the tone for things to come.

One of the biggest challenges is that no one knows how long or severe a specific downturn will be. Yet you don’t want to wait until the panic of bad quarterly results to start your recession mitigation. Start evaluating potential scenarios and related options NOW. Look for ways to manage costs that minimize the impact on company strategy AND employees as a start.

We used to always joke about doing our international travel in the first fiscal quarter of the year. The reason being that nearly every year travel restrictions went into place in Q2 after the first sign of uncertainty in the first quarter results. Cutting travel, deferring training, freezing hiring, and delaying capital expenditures are examples of early cost management steps to consider. The United States Small Business Administration has a great list of ideas to consider. But how do you decide which steps will reduce costs while minimizing negative impact to the employees and the business?

Developing options

Team up with your partners in finance and strategy to look at scenarios with varying levels of cost and people impact. You can then begin to define a series of actions that can be activated based on specific metrics, with more severe actions reserved for more serious situations. If you have a strategic plan for the business (bonus if you have a related strategic workforce plan), use it to guide your actions. Consider which elements of the strategy must be protected or even accelerated, as well as activities to stop or delay.

Specific research and development investments or sales and marketing spend may need to continue as-is to secure future business. Other planned investments with payback periods of less than a year should stay on track or be sped up. This may include already planned transitions to shared service centers as one example. You may have divestments that can accelerate, such as planned office closures or product line retirements. Stopping or delaying specific projects to move resources to more impactful activities is another tactic. Be clear about the potential employee impacts as part of the decision-making process. Consider this for existing employees as well as your external talent pipeline.

Employee well-being

HR dedicates a lot of effort to improve employee well-being, as well as organizational effectiveness. Economic downturns provide more challenges in both areas. Uncertainty, distraction, and anxiety all grow as times get tougher. It doesn’t matter if you are the CEO or the janitor, you worry about the potential personal impacts. Outside the company, rising prices along with increased difficulty in acquiring credit can create personal economic challenges. Inside the company, a hiring freeze can delay a project, a salary freeze can turn into an effective pay decrease, and the threat of a reduction-in-force can weigh heavy across the company.

At a minimum people will be distracted and can even become actively disengaged. Start involving them as early as possible. Be as transparent as you can about the position of the company in relation to the economic situation and competitors. Remember, employees are seeing the same news you are! Share the challenges and what the company is doing to mitigate them. Remember, the rumor-mill will be going full speed. By providing clear, formal statements you can help remove some of the uncertainty and build integrity for the leadership team.

Helping managers help their teams

HR must prepare people managers to support their teams on a personal level, up to and including the CEO. It can be as simple as a script outline for managers to check-in with employees on a regular basis. Feedback from these discussions is then used to address specific personal issues and identify broader topics coming up around the organization. Leveraging a strong partnership with the communications team, HR can provide a formal response to broad concerns through various channels (leader discussions, coffee corners, internal social media, FAQs, etc.).

Clear and repeated messaging will help keep the organization focused on critical activities, while sharing ways to manage mental and physical well-being. Be sure the team is utilizing existing benefits like an Employee Assistance Program (EAP) or other locally available resources. Maybe you can even free up cash from other savings for a special one-time bonus, or cover healthcare insurance premiums to provide tangible relief.

Empowering the people

Another way to involve employees early on it to ask them for ideas on ways to save costs, accelerate sales, and drive continuous improvement activities. This empowers them in the situation, along with the benefit of their great ideas! Once we ran a campaign asking for people to identify things that did not add value that we could stop doing. This uncovered several processes that we stopped to save resources and reduce complexity. This offset the level of cost-cutting necessary based on our overall plan, and we publicly recognized everyone who took part.

Upholding integrity

HR is one of the leading stewards of company values. Regardless of what words you use to describe your culture, be sure to uphold integrity during a downturn. Leaders may drive their teams even harder than before on top of the existing anxiety and uncertainty. This can lead to managers and employees feeling additional pressure to make things happen and push the bounds of ethical behavior. The last thing you need is an overzealous sales manager submitting false projections or an accountant making questionable allocations to make things look better than they are. Or worse yet, a senior leader encouraging this type of behavior. HR must be a role model and hold others accountable. As Tom Peters writes, “There is no such thing as a minor lapse of integrity”.

There is no such thing as a minor lapse of integrity

Tom Peters

In the second part of this article, we’ll explore the role of HR in upholding another core value, respect. Even in the tough case of a reduction-in-force. Let me know if you need experienced help Consulting Services > Escape To Expand.