A Delicate Balance

A Delicate Balance | Human Resource Executive Online Tread carefully: In these tough times, eliminating employee perks may save you money in the budget, but you'll lose it down the road in terms of motivation and morale.

Monday, March 2, 2009
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Stories coming out of this economy can make it look as if companies are turning their pockets inside out, looking for spare nickels with which to bolster the bottom line. Google slashed its meal plan for employees at its New York offices. Just recently, CNN reported that U.S. companies eliminated 598,000 jobs in January of this year -- the worst job loss in 34 years.

And there are articles out there on bootstrapping your business back to financial health by buying used furniture, making desks out of doors on sawhorses and switching to low-energy light bulbs.

In this environment, employee perks -- the company car, the corporate jet, on-site daycare and even the donuts in the break room -- can start to look like line-item expenses with big, fat targets on their backs. If a company is refilling old ink cartridges instead of buying new ones to save money, what chance does the fitness-club stipend have?

"In the economic downturn, companies across America are looking for ways to maintain -- and ideally to cut -- costs," says Laura Sejen, practice director of strategic rewards for Washington-based Watson Wyatt Worldwide. "The question is, what cuts return the most savings with the fewest negative side-effects?"

It's almost a Catch-22, says Sejen. Not reducing costs in this environment can cripple a company. But eliminating too many perks, or the wrong perks, in an effort to reduce those costs can lead to widespread employee resentment and demoralization -- which can cripple a company.

The trick is in figuring out how frugal an organization can be before it begins to seem callous, or even petty.

"Would eliminating on-site daycare represent cost savings?" asks Sejen. "Absolutely. The question is: Does it represent a big enough cost savings that if those perks are firmly engrained in the corporate culture, does the impact on employee morale and company reputation outstrip the cost savings?"

Even when done in the most "correct" way possible, reducing perks can look bad from a company's PR perspective, according to experts. Perhaps that's why employers contacted for this story were hesitant to talk directly about their cuts in this current downturn.

During prior recessions, many companies eliminated costly perks such as daycare and fitness facilities entirely in an effort to save costs, says John Challenger, CEO of Challenger, Gray & Christmas, a global outplacement and executive coaching firm based in Chicago. During the time the economy remained depressed, negative impact was minimized because employees with jobs were reluctant to leave them. But as the economy began to recover, many of those companies found themselves in a compromised position to recruit and retain because they had lost so much on employee good will.

"Smart companies today are recognizing that they can't slash and burn everything," says Challenger. "They have to be judicious about it."

Accordingly, the results of an October survey conducted by Challenger suggest that employers today realize the potential for negative backlash that can come with sweeping cuts. Only 20 percent of companies surveyed had made any perk cuts at all. More than 56 percent had decided that perks would remain in place, with the remainder never having offered perks or undecided. Moreover, the majority of companies even said they still planned on giving year-end bonuses -- and of those, 43 percent said the bonuses would be about the same as last year's.

In this economy, how can these companies afford to keep perks and bonuses? "How can they afford not to?" says Challenger.

"Companies that cut perks too harshly may find that the blow to employee productivity and loyalty isn't worth the savings," he says. "They may not even see the impact now, while the economy is rough and employees are reluctant to leave, but they will feel it when better times return."

And indeed, the Bureau of National Affairs Inc., a business research and publishing firm in Arlington, Va., found in a recent study that 34 percent of employers identified recruitment and retention as their highest priorities -- even during the recession. So even while minding costs, companies need to keep employees happy and need to be able, when required, to entice new talent into the fold.

"There's a mind-set right now that it's a good time to invest in talent," says Fran Luisi, principal of Rumson, N.J.-based HR executive search firm Charleston Partners. "We still have business issues to address even in a downturn. You still have the issue of baby boomers retiring down the road. You still have emerging markets and globalization and technological advancements. Intelligent organizations are those that continue to invest in talent."

Tough Choices

Luisi's space is executive recruiting -- the domain previously characterized by the executive condominium, the company jet, the golf membership. Tougher scrutiny by the Securities and Exchange Commission and judgment in the court of public opinion has changed the way these perks are viewed, and made them a political hot potato.

For the companies that are cutting them, Luisi says, it's largely viewed as a necessity of the changing times and is seldom a deal-maker or deal-breaker amongst that high-performing "right talent."

"The best of the best are concerned much more with the business, corporate culture and market share than some of those perks," he says. "The people top organizations are trying to recruit are interested in the major areas of focus. Whether they have access to the company jet is not that big of an issue."

Besides, Luisi adds, retaining expensive executive perks has a huge potential for backfiring among employees lower in the organization who may be taking pay cuts and experiencing layoffs.


"If the organization has a very strong business and financial acumen, [cutting perks] can almost be valued by good executive recruits," he says. "It means the leadership of the organization is focused on the bottom line and on making the organization better and healthier."

Although extravagant executive perks may make the news, it's the smaller perks used by wider populations that are often the big cost centers due to the sheer force of numbers, says Watson Wyatt's Sejen. Keeping the jet may seem more politically incorrect, but keeping subsidized daycare could cost the company far more.

This cutting of perks for average employees can be another catch-22 -- an incredibly tough subject to broach without stepping on toes, she says. There seems to be no way to slash programs that are deeply rooted in the company's culture without generating a lot of anger, as Google discovered when it announced plans last summer to nearly double the cost of daycare to its employees, leading the New York Times, in a July 5 "Talking Business" column headline, to declare the move a "rare fumble" by such a favored employer.

Cost-saving measures of such proportion are, nonetheless, sometimes necessary even if they're unpopular, says Sejen. Sometimes, the choice is between a move such as Google's daycare revamp and layoffs. Companies that feel overstaffed and for whom culture is vital may opt to reduce headcount and keep the perk. Others may choose to save jobs and cut the perk.

Either choice is bound to be unpopular. To mitigate the damage, a company's best bet is communication, communication, communication.

"The high-profile nature of the economic downturn does make it easier for companies to implement cost-cutting," Sejen says. "But what employers need to be mindful of is that, in addition to communicating to employees what the company's decisions are, they also need to put the decisions in the context of their particular economic conditions."

In other words, it's not enough for employees to know that the economy is bad or even that the company as a whole is having trouble. They also need to see financials, to understand how the market sector is faring, how their individual business unit fits into that sector, and what all of the financial moving parts are. If they understand that the choice might be between a job without perks or no job at all, they may be more likely to accept reductions even if they don't like them.

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Forward Thinking

Being proactive and thinking ahead is another way to lessen the bite, says Bob Nelson, president of San Diego-based Nelson Motivation and best-selling author of 1001 Ways to Reward Employees.

"There should be communication before the cuts as well as during them," says Nelson. "A company should form committees and ask employees to participate in the decisions being made. If they're part of the decision, they're more likely to go along with it."

In this way, employers can assess which perks are truly dear to employees and which are seen as simply "nice bonuses." Maybe a workforce loves the free concierge service but wouldn't mind paying to use the on-site fitness facility. If management doesn't solicit opinion and goes ahead and eliminates the favored program, there's likely to be more resentment. But if employees knew cuts would be necessary and participated in the decision about what to cut, they'll be less surprised and less angry, says Nelson.

"If these things are communicated as, 'We're belt-tightening and we need your help and your input,' I think most people would take it more in stride than if they just show up one day and there are no donuts. That feels petty, and just one more reason for them to think that they need to find a new job."

Cutting donuts or coffee probably does seem petty, but some companies have done it. Rest assured, employees will almost certainly see it as petty, says Nelson, so he strongly urges companies to think twice before axing such small perks. The costs of these little indulgences are trivial, says Nelson, and cutting them will feel to employees like a slap in the face.

The inverse of the "don't cut the coffee" approach goes a long way toward explaining how successful companies can operate on a shoestring while still making employees feel valued and appreciated. Things such as coffee don't cost much at all, but can really make a difference.

In fact, the Challenger, Gray & Christmas study found that, of the companies that said they would not eliminate perks, 35 percent reported using low- or no-cost perks. Work/life benefits were big among them, says Challenger -- things such as openness to flexible scheduling or three-day weekends, pet-friendly offices, a casual dress code and an open environment for telecommuting.

"Those sorts of low-cost perks are really important to people and don't cost the company a lot of money," he says. "It would be gratuitous for companies to cut all of those."

Watson Wyatt's Sejen says her firm has spoken with a lot of clients about increasing the use of recognition programs -- things such on-the-spot bonuses of movie tickets, days off or gift cards to reward employee contributions.

"In a downturn, when there is less money to go around for the more traditional forms of rewards, programs such as those can be a nice way to recognize the contributions of employees," she says. "The monetary rewards can be minimal and the non-monetary rewards have no cost, but it's a way of saying 'thank you' to employees who are working as hard as they can to achieve results that are probably not as good as they achieved last year."

It's important to avoid making it look like an insufficient form of quid pro quo (you took a salary cut, so have dinner on us at Applebee's to make up for it), but if used properly, such programs can replace a bit of the morale that gets lost during tough times.

It's unlikely employees will ever be pleased with cutbacks, but judicious use of smaller or low-cost rewards along with frequent, open communication can go a long way toward making a tough time as comfortable as it can be, and keeping motivation and morale out of the gutter.

"If the company culture is strong to begin with, and people trust the company, generally people can look at the economy or the industry, see the shape it's in, and understand what the company must do," says Challenger. "Right now, most companies are going into a 'batten down the hatches' mode.

"But when the weather turns good, they'll react to that as well. They'll go back to the 'baby boomers are retiring, there's a labor shortage' long-term future, and then I think we'll see these perks return."

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