Recession, Cost Cutting and Employee Motivation

, mThe recession prevalent for the last almost two years has reportedly been the prime reason where companies across all sectors have resorted to a slew of cost-cutting measures which include sales of assets, travel freeze, employee layoffs, freeze on salary increments, and many others.

No doubt most of these measures are crucial to the well being and indeed the survival of some companies. Companies have gone ahead and updated their corporate policies and implemented the same to safeguard the interests of the shareholders. Unfortunately, the employee as a principal stakeholder is sometimes ignored. There are some peculiar instances where employee related austerity measures fail to withstand the the test of common sense and logic.

As a suitable backdrop for this discussion, let's look at an imaginary representative software services company that has say a annual revenue base of around Rs. 1000 cr with an employee strength of 6500 persons. Lets assume, the salary expense come to about Rs. 550 cr and the PBDIT is about Rs. 250 cr. Lets further assume that this company does not reduce some of its manpower (500 persons) due to performance issues and a reduction in business opportunities. It also announces a freeze on any increments for the two years and a sizable cut in the variable pay of the employees as well.

Now that the economy is looking up, and the stock markets have risen consistently for about 7-8 months, the company is upbeat about the future. The company also maintains and thanks the employees for standing by it in trying times. It also announces employee oriented qualitative measures. But, at the same time, the company maintains the need for continual of the austerity measures in view of a possible economic downturn. The employees are, however, not so upbeat due to rising inflation, the continued freeze in salary increments and cuts in the variable pay. And obviously the employee motivation levels turn dangerously negative due to a seeming lack of congruence in the words spoken and the deeds performed.

Assuming the company's reading about the uncertain future is valid, is there anything that can be done at all to boost employee motivation and confidence? Let's evaluate one possible measure and its impacts, both financial and motivational.

Let's assume the company announces a one time cash reward of say an average Rs 15000 per employee. What is the impact?

1. Financial Impact:
Increase in salary cost = Rs. 15000 x 6000 employees = Rs. 9 cr
Therefore, percentage increase in salary cost = (Rs. 9 cr / Rs. 550 cr) x 100 = 1.6%
Percentage decrease in PBDIT = (Rs. 9 cr / Rs 250 cr) x 100 = 3.6 %
Considering the hardships faced by the employees in terms of rising inflation and other factors, this one time extra cost is quite manageable and even negligible to some extent.

2. Motivational Impact:
The motivational impact obviously is difficult to gauge in numbers, but such a step would build up a substantial positivity in the employee. First and foremost, it bridges the credibility gap between what is said and done. It also sends a correct message regarding the future uncertainty, business austerity and the concern it has for its employees. A cash reward of Rs. 15000 though not comparable to the expected salary increment, is substantial enough to gain the lost employee confidence and morale. With the potential increase in employee positivity and motivation, the corresponding impact on overall business operations and objectives would definitely be far reaching.

To put it concisely, it is well upto the company management to think of such bold innovative steps that augur well both for the organization and for the employees as well.