Motivating Workforces in Downturns

The 'B' word has very much been in the press lately and I have blogged about bank bonuses with some gusto. Let's get things into perspective, I am not talking about the multi-million bonanzas we see mediocre executives picking up, I am talking about the reality of performance-based pay incentives which are used up and down the land and all across most enterprises.

Many businesses have used the trick of putting a percentage of, often, their entire workforce's total compensation at risk. Over the years this may have been done with stealth by, say, award a minimal or no pay rise but offering a bonus incentive to earn it instead or some have just used a bludgeon and changed packages to make part of what staff previously earned as an at-risk element.

During good years, firms have generally got away with it. Performance has been good enough to pay the bonuses anyway and/or if staff leave there has been a plentiful supply of willing workers who accept the new performance related methodology.

I have seen it apply right down to administration and reception staff highly rigorously - makes you wonder if the receptionist is on an incentive to let more or less people into the building but let's not go there on the measurements.

Downturn Effects

The problem arrives when the business experiences a downturn or recession. Much of the staff would have been expecting the total compensation package. In many instances, because the performance related elements are really about doing their job, they actually easily score the required performance level, particularly for non-sales, marketing or finance related staff. So companies often use the caveat - that performance related pay is awarded at the discretion of the company and if they point to overall performance they can 'legitimately' say that there is not enough profit to pay bonuses.

At this time, many of the bonuses that banks are awarding are to the lower grade staff, the ones who were never involved in the fiscal mayhem that their senior executives and prima-donna investment staff participated in. They did their jobs according to the letter and they get vilified the same way as the top brass. That must gag in their throats to see senior executives still at the top, still earning enormous salaries and driving plush cars while they get the full face of the negative PR and people like me trying to deny them what really is a normal compensation package.

Often, in a downturn, it is far too convenient to forget the backbone of the company, the vast majority of staff who make sure the business survives in good times and bad.

Staff Motivation

The problem is that as money gets tight, senior executives start handing the controls to accountants and cost-cutting consultants who only have one thought in mind - numbers. The easy rule is that if you have 10,000 staff, then it would cost a damn sight less if there were only 9,000 and those 9,000 are paid less.

The mathematics is simple.

However, the reality is very different. Cost cutting and particularly lowering pay or refusing to pay bonuses is highly demotivating, particularly if staff have come to depend on them for basic living. In sales, it is always argued that you should live off your basic salary and earn the upside and I have had many terse conversations with salespeople over the years who claim that they should earn their commission just because they cannot live without it. It's different in sales - that argument does not wash.

But for administration staff it does hold water.

Think Creatively

As sure as a downturn is hard to survive, if you can batten down the hatches and ride the storm, then an upside will come and can be enjoyed.

The trick is to make sure you keep your staff motivated and ready to take advantage of the upturn when it comes. If staff are still haggling over pay and job cuts when the upturn comes, then they will be in no position to help you take advantage of it.

So before you hand over your controls to accountants make sure you set parameters. And here are some tips:

1. On bonuses, make sure senior executives surrender bonuses first as this will have the biggest effect. Make sure that bonuses are waived completely at this level and none are handed out 'just for turning up'.
2. If company cars are still used, make sure leases are extended and no new vehicles arrive during a downturn - nothing demotivates staff more than seeing a nice, new car on the parking lot and an executive climbing out proudly.
3. Even if targets have not been met generally, make some element of a bonus award to general staff and make it as 'gesture' for the hard work and performance they have put in. Possibly let them know you have had to hold some back to due the current climate but promise to give that back as and when the company returns to acceptable levels of profit.
4. Look at sales commission plans and adjust the plans - you should always have the caveat to change commission schemes so make sure you have. Try to stop paying out just for minimal performance and compensate by adding in accelerators for above target performance which are far more aggressive than normal. Tell the staff why they are having to do this. For those staff who are only hitting minimal performance levels, put in place Personal Performance Plans (PIPs) in conjunction with standard HR procedure and make sure you help them to try and increase performance. Use this as a tool with HR governance to weed out poor performers - hangers on are not a good idea in sales, particularly in downturns.
5. Communicate with staff - never underestimate the loyalty of staff if you communicate and let them know how tough the situation is. Ask them for creative ideas for cost cutting measures or on compensation so that they have a say - reward them for good ideas that can get implemented and measured.
6. Don't take away small, but symbolic perks. I fell into the trap of taking away monthly pizzas which were bought for the company and realised that I saved a few hundred pounds but lost the symbolic 'thank you' to staff for working hard. It was a stupid thing to do.
7. If you simply cannot afford to pay bonuses because you are so short of cash then tell everyone why that is the case. However, make sure that HR is on hand for any staff with a pressing problem such as a mortgage or car finance issue because of it. Listen and think on each case.
8. Keep investing in people - it is too easy to let all the simple things staff enjoy as part of working at your company go in the interest of saving money in the short term. Many such perks never return - I remember in my first job at HP when they withdrew free staff biscuits never to return. Still to this day it is an in joke of how the 'HP Way' was eroded at the first sign of trouble. Company culture and ethos is something money cannot buy but can be easily lost due to lack of money - remember that as it is often the little reasons why staff enjoy working for you and they have a habit of remembering that when the market upturns and jobs are easier to get.
9. Keep near your gems - if you have staff who are high quality and good performers, make sure you keep very close to them and take a special interest in their motivation. If you have to be selective about bonuses - albeit on a scale that is fairly based - make sure that these people have something and make sure any reward is sent directly to their home address with a personal letter explaining why they received the reward and how valued they are.

The Grading Trap

The last tip is very sensitive and should be played very carefully and within the rules of good HR governance - now is not the time to risk being brought to book for ill-advised staff issues that favour some over others for reasons solely based on personal subjectivity; it has to be for the right reasons within the bounds of running merit schemes.

There is an obvious trap. Grading can be your worst enemy in a downturn as very often companies look at grading and reviews in order to assess where to invest most money in staff. Often, investment money is polarised toward the 'high performers', those who score highest on the grading and review system. Conversely, the people who score lower get a lower investment. It makes sense in HR and management terms particularly in the good times.

Things start to fall apart when the downturn comes. Lower grade staff have been less invested in, probably are behind the earnings curve and are less likely to hit bonuses due to the way the system works. Often these people are trained less, given less skills, get less perks and are generally discriminated against when management sit down and consider staff matters in general, such as redundancies. Too often, such staff will be the victims of poor management, lack of training or mentoring, poor recruitment techniques, and can even be in the wrong job for their experience and skills sets.

So when the downturn comes they are right in the firing line.

The problem is that they are usually the staff who make up the back bone of the company, the dependables who turn up and get things done. They are just as likely to be as important in keeping the company going in a downturn as in an upturn. So having them demotivated by lack of investment as you go into the downturn is not a good idea and treating them differently to those you assess as better than them will further alienate them. When the upturn comes, they will likely be the ones who turn on you, slow you down and haggle about pay and conditions almost as a gun to your head just when you don't need it.

My advice is to watch grading systems carefully. If you live by them, make sure that you are implementing them rigorously and with care, that managers are not subjective in the process. Then, when the downturn comes, ease your policy - don't make staff decisions based around grading alone. You only have to have one situation where a person believes that management graded them subjectively to upset an entire apple cart and cause potential lawsuits and tribunals.

Tread very carefully and try to invest in staff as equally and as objectively as you can during a downturn. They are the key to your survival and future success.