What’s the message you are sending to your employees when you cut payroll but continue to spend unwisely? Not a good one! While we are currently in an economic environment where businesses are needing to be savvy about how they spend their money, I continue to see owners make poor choices.
Cutting payroll is a hard decision to make for most of us entrepreneurs. We understand that our employees are probably living paycheck to paycheck and cutting that check means potential financial issues for our staff. When you make the decision to cut payroll, be sure you have thought through the pros and cons of that decision.
Cutting payroll is typically the fastest way to save the bottom line because it is an immediate savings. We don’t have to sell our inventory or assets to get the money. We just simply reduce the hours and reduce the payroll costs. What is the message that sends to our staff? If communicated wisely, it can have minimal impact on employee morale. However, only if the staff sees that you are making savvy cost cuts in other places of the business as well.
Here are a few questions that you need to consider when reducing expenses in your business.
1. Have you reviewed the remaining expenditures in your company and tightened the belt in other areas as well?
If employees see you cutting their payroll while you continue to spend money on excess travel and other expenses then you are sending a mixed message and one that they may not support you with. Remember, great employees are always in demand. If they feel you are cutting their payroll while not watching other expenditures, you could very well be telling them they are unimportant and you don’t mind if they leave.
2. Are you personally demonstrating a restraint on spending that communicates to your staff that you too are impacted by the decrease?
If your employees are having to adjust their personal lifestyles because of payroll cuts you have implemented but you are not showing similar restraint in your personal life. Then ask yourself what kind of message you are sending. I’ve seen owners cut salaries then turn around and take lavish trips with their families. Hello? What type of message are you sending? “Hey employee…I am cutting your salary but I have enough to do whatever I want?” is what you are sending to them. They don’t care about the truth, they care about what is personally impacting them first before what is impacting the company. Remember, they are the employee…so it is all about them.
When I consult with owners, I have to give them some serious tough love because that is not good business. While you may personally have other options to fund your lifestyle, you should remember that perception is reality to your employees. If they believe you are not personally impacted then it can create a wedge between you and your staff. They have to cut back but you don’t? That is negative any way you slice it.
3. Are you keeping the lines of communication open so that employees know where their jobs stand?
Communication during any time of change is critical. When your employees think you are hiding things from them, then they become suspicious and envision the worst. While you do not need to over communicate, it is important to keep good lines of communication open so that they don’t run for the hills unnecessarily and leave the company prematurely. Remember, only the owners see the full perspective. Employees have more narrow views and will be focused on what most directly impacts them. Be cautious and ensure you are looking at the full message you are communicating to staff.
While I am completely supportive of businesses cutting costs to operate financially fit. I can’t help but caution owners of the way they do it and the message they are sending to their staff. Please understand that cutting payroll sometimes is a necessary evil and you should do it if needed. However, you should only cut payroll if you are cutting other unnecessary expenditures as well. Spending lavishly at the expense of your staff can cause you serious morale issues that lead to good employees leaving so be cautious when using this approach.