Human resource management skills a key to riding out the downturn

Posted by Daniel Palmer on 29th August 2008

Companies must incorporate greater flexibility in the way they manage their people to sustain their business strategy in adverse market conditions, according to PricewaterhouseCoopers LLP. And, with a wave of negative economic news over the last 12 months, employment costs – which include pay, employee benefits, national insurance contributions and administration – require close scrutiny.

Debra De’Ath, Director at PricewaterhouseCoopers LLP, believes hasty attempts to reduce costs such as staff reductions can often do more harm than good. “Reducing headcount can be a knee-jerk reaction to difficult trading pressures but organisations need to remember making redundancies can prove costly, both in terms of payments in lieu of notice and recruiting new staff in an upturn,” she warned. “Companies in all sectors could benefit from thinking creatively about how they reward and deploy their employees as alternatives to redundancies.”

Alternatives to reducing headcount

There are a number of potential alternatives to making employee redundancies, according to PwC. Businesses can consider introducing flexible working, job share arrangements or reduced hours. Other options include seconding staff to charities or clients, or encouraging employees to take career breaks. “In a difficult job market, some people would rather keep their job under a different arrangement, such as with reduced hours, rather than be unemployed,” Ms De’Ath advised. “Strategies like this also mean that when the market picks up it is easier, cheaper and quicker for companies to react.”

Employment costs and remuneration planning

Employment costs can account for up to two thirds of business costs and, in times of market uncertainty, it is unsurprising that CEOs put pressure on their HR and finance functions to manage these costs closely. Tactics for bringing costs under control range from improving expense management to assessing bonus and commission arrangements. Reviewing recruitment policies and processes, together with assessing the use of contractors, can also bring cost benefits.

“Employers and employees alike can benefit from cost-effective remuneration planning,” Ms De’Ath added. “In practice, this might mean introducing flexible remuneration and benefit plans or offering salary sacrifice options. Simple changes at no or low costs can result in significant financial savings for employers and enhanced benefits to employees.”

Salary sacrifice arrangements

Salary sacrifice arrangements can help employers save on employment costs without reducing the number of their employees. They may be used to structure the provision of, for example, pension plans, childcare, mobile phones, accommodation, travel, car parking, staff restaurant/canteens and company cars. Managed well, they can be cost and time effective ways of providing benefits to employees yet still fully compliant from a tax, employment and consumer law perspective.

Reducing workforce

If reducing the size of the workforce becomes a necessity, then understanding of legal obligations is vital to ensure the company doesn’t unfairly deal with employees. A lack of awareness will not protect a business from costly legal action and a consequent plummet in public respect.
Ultimately, companies need to be planning ahead and aware that knee-jerk reactions based on short-term thinking often lead to problems in the future. Economic conditions will eventually improve and your business needs to be in a position to capitalise when it does. If the consumer perception drops during the difficult times it will not magically return to bygone days just because economic conditions improve.