Keeping cost in check and employees on the payroll amid COVID-19

The beginning of 2020 has been anything but what it was expected to be. With the universe being thrown a curveball, that goes by the name Coronavirus, the world of work has witnessed disruption across all domains and functions. Triggered by COVID-19, resulting in a threat to both life and business, companies are finding furlough as the first way out to maintain business stability. However, in deciding who gets to stay and who will be asked to leave, the question remains - is there a way out of furlough?

In recent news, Macy’s, Gap, and Kohl’s decided to furlough thousands of workers without pay, as retailers around the world face tumbling sales driven by COVID-19 social distancing efforts. Retail workers make up a substantial portion of the US labor force, February numbers from the US Bureau of Labor Statistics put seasonally adjusted retail employees at 15.7 million, or about 9.8% of all civilians employed.

The relevance of cost and importance of cost-cutting has grown multifold in the recent times, as a result of the widespread Coronavirus, that has not only led to forced lockdowns, social distancing and the biggest global remote working experiment, but also poses a threat to the very existence of both mankind and business. There has been significant loss in global revenue already, and by further laying off employees, it will only contribute to loss of talent with no one to count on once the situation stabilizes and it’s time to pull the gears, put on the blinders and fast forward out of the slump. So keeping retrenchment as the last resort to stay afloat, organizations continue to explore other avenues to control costs and keep the business running. 

What’s happening across the globe

As an obvious next step to ensure business sustainability, several firms took to ensuring they minimize costs as much as possible, while also working on measures to minimize the impact on talent. However, in this war of talent and cost, for some organizations, minimizing costs led to letting go of talent. In an effort to curtail this practice, Governments, organizations and unions, across geographies are working towards building alternatives to retrenchment and furloughs, safeguarding the interest of both the economy as well as people.

In a statement to the media, Singapore’s National Trades Union Congress President Mary Liew shared, “I think it’s important that during this time the employers step forward and also show their appreciation and work together closely with the workers and also reward them fairly and accordingly as well. And moving on when the economy turns around, they will need the workers as well to continue on with their journey.”

Among global initiatives, Singapore appears to be at the forefront to tackle the impact and help bring back its economy to stability. Singapore’s National Wages Council and Ministers have come up with cost-cutting alternatives and guidelines for companies, emphasizing that retrenchment should be the last resort. While wage freeze and increment delays are among the most commonly adopted measures to navigate costs, the Council has also recommended employers to be open to employees seeking part-time jobs to supplement their income. As some organizations implement shorter work weeks to save costs, Council Member Aubeck Kem suggests that employers should be “encouraging and facilitating” employees in this direction. NWC also suggests leveraging training opportunities, introducing new job roles, and creating a time bank where employees are fully paid despite working for lesser hours now, in agreement to utilize those hours for work in the future. Instilling a positive outlook in people, Robert Yap, President, Singapore National Employers Federation shared, “We should look at how we can use this opportunity to do a lot of things that we’ve been trying to do. For example, flexible work, productivity, innovation, how do we cut costs, how do we create that kind of habit that we work actually in a more digital manner.” 

Companies like Grab, Gojek, Temasek, Singtel, CapitaLand, BreadTalk, Singapore Airlines, Certis, Sats and Singapore Press Holdings recently announced pay cuts for senior management, with some also implementing wage freezes. Beyond the corporate world, Singapore’s Prime Minister, Cabinet ministers and other political office-holders, and the President will be taking a three-month pay cut. In order to keep layoffs at bay, organizations are taking diligent decisions and reallocating company cash flow towards those who are the most impacted. Several consulting firms, airlines, travel platforms and others have also announced such measures where cuts in Executive and Director level salaries are accompanied with increment delays, wage freeze and CEOs letting go off salaries.

From hospitality giant Marriott International’s CEO Arne Morris Sorenson to retailer Macy’s CEO Jeff Gennette and Chairman of the Mahindra Group in India, Anand Mahindra, among others, leaders are letting go off their salaries for a said period and stepping up to avoid any impact on jobs. 

Cutting costs, not talent

Organizations are being cognizant of the impact of the global pandemic on both the professional as well as personal lives of the workforce, and in an effort to enable their employees to sail through the tough times, companies across the globe have come up with a slew of measures to keep cost in check and employees on the payroll.

While the hospitality and travel industries have experienced the biggest impact, other industries have been feeling the weight as well.  With the pandemic putting the global economy through unprecedented losses, cost-cutting is the need of the hour, and it does not have to be a precursor of retrenchment.

Here are some global practices on cost-cutting that are helping organizations reduce costs and retain talent. Read on to find out what works for you.

• Unpaid time-off: With operations and production coming to a standstill, business continuity is of the essence. Balancing out the amount of work, existing manpower and budgeting for the times ahead, asking employees to take an unpaid leave of absence is among the most common measures that companies are pursuing. The latest company to join the rest is Honeywell. In an internal memo to employees, the company states, “Because it is necessary to execute further cost reductions that are commensurate with deteriorating economic conditions, we have made the difficult decision to implement a two-week unpaid leave across our global workforce in the second quarter.” The company aims to pull off the two-week unpaid leave through April and May on a rotation basis to ensure continuity in operations, in accordance with local laws of respective geographies.
• Shorter work weeks and time banks: If anything, the swift adoption of remote working globally has demonstrated the capability of organizations to not let work stop, at least for those where work does not require physical presence of employees in the office premises. Such flexibility and agility only goes to say that if need be, leaders are courageous enough to take unorthodox decisions to keep employees safe, and business going. Adhering to this nature, there are organizations that are experimenting with either shorter working weeks in exchange for a pay cut.

Australian travel company Flight centre circulated an email to its staff of 10,000 members that said that staff can work a four-day week rather than five days with their salary reflective of this change.

Speaking of shorter work-weeks, Andrew Barnes, the CEO of Perpetual Guardian, an Estate planning company in New Zealand shared, “Many businesses are considering or implementing reduced hours and reducing pay as well,” further adding, “The methodology of the four-day week trial is to have a safe, renewed focus on productivity. The process eliminates much of the unproductive busyness whilst reinforcing trust between employers and employees. Businesses who do this will have a better chance of surviving this temporary crisis and maintaining employment for their people.”

An extension of the concept of shorter work-weeks is time baking. Under time banking, employees work for lesser hours without any impact on pay in the short term, in agreement with fulfilling those unutilized working hours at a future date. This will result in more funds for work to be done in the future.

• Revising compensation structure and delaying increments: As mentioned earlier, leaders across the globe, across the Board in companies are taking pay cuts to help sustain and leverage funds towards current critical requirements. For some companies, these pay cuts are also being implemented for specific segments of the workforce. Sabre, a leading software and technology company that powers the global travel industry, has implemented a temporary reduction in base compensation pay for its US-based salaried workforce, including a 25% reduction for its CEO.

Emirates, a Dubai-based airline, has also introduced a temporary reduction in basic salary for the majority of Emirates Group employees (excluding junior level) for a period of three months, ranging from 25% to 50%. Presidents of Emirates and dnata, Sir Tim Clark and Gary Chapman, will be taking a 100% basic salary cut for three months.

Expressing his take on the same, Emirates Chairman and Chief Executive, HH Sheikh Ahmed bin Saeed Al Maktoum said, “Rather than ask employees to leave the business, we chose to implement a temporary basic salary cut as we want to protect our workforce and keep our talented and skilled people, as much as possible. We want to avoid cutting jobs. When demand picks up again, we also want to be able to quickly ramp up and resume services for our customers.” Among other companies to follow suit are Air India and Honeywell. In addition to revising compensation structure, companies also need to cut down on all discretionary expenditure including non-essential travel, vendor costs, hiring and consultant costs. 

• Seek government support/ funds: Find out what measures are your local and national Governments taking to soften the blow on the economy. Identify avenues that are applicable to your business and seek possible monetary respite before you head towards laying off the workforce to save on costs. Several Governments are also creating fiscal rulebooks and exploring alternatives to furlough in an effort to safeguard business and jobs.

While businesses still might have to let go a percentage of the workforce, the UK is providing grants that cover 80% of wages for a furloughed employee, subject to a monthly cap of £2,500. The US is providing loans of up to $10 Mn to companies with employee strength under 500, covering payroll and essential overheads.

The Indian Government has also advised employers not to sack employees. A statement by the Government read, “In the backdrop of such a challenging situation, all the employers of public/private establishments are advised to extend their coordination by not terminating their employees, particularly casual or contractual workers from the job or reduce their wages.”   

• New job roles: Look for the needle in the haystack. With all the attention drawn towards controlling costs, the emphasis on performance and productivity has taken a backseat. Look for the enthusiastic talent internally, identify prospects who can contribute across projects and voila. You aren’t bearing overhead costs, you are optimizing talent at a much lesser cost. Another advantage - keeping your employees motivated, engaged and instilling a sense of contribution in times like the present. 

With a majority of global organizations being quick to adapt to new working models, a similar agility is required to strengthen their financial position as well secure their standing as an employer. How long will COVID-19 and its impact last? That remains to be ascertained, making it more crucial to convert challenges into opportunities and not letting the circumstances hold you down. The strength you show as a business, as a leader, as an employee now, will determine how successful you will be in navigating the uncertainties that lie ahead.