Curious as to board preferences

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Curious as to board preferences - Mick - 03-22-2020

Thanks to the coronavirus and the government-mandated slowdown in the economy, your company is not making enough to cover worker costs.

You're the owner of the company. Your choices are a 10% paycheck cut across the board (or modified to stress lower paid workers the least) or a layoff of 15% of your employees.

Which is your choice?

RE: Curious as to board preferences - cardcrimson - 03-22-2020

(03-22-2020, 02:17 PM)Mick Wrote: Thanks to the coronavirus and the government-mandated slowdown in the economy, your company is not making enough to cover worker costs.

You're the owner of the company. Your choices are a 10% paycheck cut across the board (or modified to stress lower paid workers the least) or a layoff of 15% of your employees.

Which is your choice?

Depends on the people and corporate structure, and of course the situation and expectation for the length of the downturn. Layoff enables employees to file for government subsidies. In an organization with partners, deferred comp and/or wage reductions makes more sense for the partners.

RE: Curious as to board preferences - 82lsju - 03-22-2020

(03-22-2020, 02:17 PM)Mick Wrote: Thanks to the coronavirus and the government-mandated slowdown in the economy, your company is not making enough to cover worker costs.

You're the owner of the company. Your choices are a 10% paycheck cut across the board (or modified to stress lower paid workers the least) or a layoff of 15% of your employees.

Which is your choice?

back in the days of the old HP Way we did take 10% pay cuts, rationale was that the downturn would not last forever and we'd need to hire people back so we should all "be in it together". I'd still go with the philosophy but would probably modify it with your suggestion to have the cuts be more for higher paid employees given the much bigger difference between the highest and lowest paid today than way back then.

RE: Curious as to board preferences - Snorlax94 - 03-22-2020

As someone who has had to make cuts in the past at a business I own, I say layoffs.

The earlier it is done, the more generous the severance package can be. Unemployed workers can get unemployment insurance and find a new job.

A lot of it depends on the specifics, of course. A laid off sales clerk making $15/hr may be able to get a job at a grocery store paying the same.

If it’s a law firm and workers are making $200-$500k, I say a graduated paycut. There are industries where it’d be hard to get a new job and it’d be more important to try to avoid layoffs in those cases. Or what if it’s a small town with very few employers.

RE: Curious as to board preferences - Goose - 03-22-2020

I too have been in that situation, except we were in a worse situation. The founders took a 100% pay cut. Top management took a 50% pay cut. Everybody else took a 25% pay cut. No layoffs. This was not due to a general recession, but a big drop in demand in our market. If I had it to do over again, we would do layoffs instead of the 25% cut. The problem is that many people can't live on 75% of their pay and must find a new job, period. Many who could survive it but have ambition and marketable skills decide that now is the time to look. The remainder are generally the guys who were not really the ones we preferred to keep, given a choice. There were jobs to be had in the market, so we lost a lot of talent that would have stayed had we just had a layoff. We bounced back within a year, but the personnel loss was both painful and definitely harmful. It would have been for better for the company if the management had decided who to retain rather than letting them self select. In this, Jack Welch was right.

RE: Curious as to board preferences - CardinalSagehen - 03-22-2020

I may be facing this decision soon in our niche, B2C Internet services business. Although we have no logistical problems delivering our services in this environment, they're very expensive and somewhat optional for most people, so we're concerned about a slowdown. We're already seeing signs of it.

Making matters more complicated, there are other major costs in our business, primarily advertising. Some of our advertising will be / has already been the first to go, before people, in our case. Paradoxically, if we cut too much advertising, there won't be enough leads and we might end up in a death spiral that forces more layoffs. So, it's tricky.

We cut all radio advertising last week and stuck with our cable TV, on the theory that people are at home watching more TV and hearing less radio in the car. But the truth is, neither radio nor TV has enough of a measurable (i.e., near-term, directly attributable) return on advertising. For us, they're both partly a leap of faith and a bet on the importance of our brand in the long run. We might be able to avoid a total death spiral by sticking only to our bread and butter, which is paid search ads on our niche search terms.

Now, to the question at hand. As much as I'd like to give everyone a 10% pay cut, I feel like it would weaken our company vs. the layoff option. For example, by cutting our lowest-performing phone-based salespeople, more leads will go to the best salespeople that have the highest close rates. This will in turn minimize the damage to our cash flow, so that we can stay afloat and avoid laying off more sales people, engineers, writers, etc.

I'm not thinking about myself in this decision. As much as I'd like to support the more socialistic 10% or progressive reduction approach, I'd feel irresponsible toward the rest of the team and toward our ownership. It doesn't strike me as the better business decision for us. But I have been in other companies where the 10% choice could make sense.

RE: Curious as to board preferences - BostonCard - 03-22-2020

By the way, the poll functionality appears to be broken; we think it is because of an incompatibility between the board software and the plug-in. Sorry about that...

BC

RE: Curious as to board preferences - stupac2 - 03-22-2020

My company went through a similar situation to Goose's, after a couple of problems hit all at once (biggest customer switched off us, missed a couple grants we really thought we'd get) and our income cratered the upper management forewent pay for a while and tried to right ship, but we ended up having to do layoffs. I think it made sense for the reasons mentioned elsewhere, losing a % of your pay can be nearly as difficult as losing your job (especially if the % is large enough they're effectively the same until pay is restored), and they got to choose who stayed instead of shedding important talent. We've recovered a bit but this could really damage us if we end up having to completely close up shop for a while.

RE: Curious as to board preferences - Mick - 03-22-2020

In 2009, we did a combination of layoffs (30%) and 5% payroll reductions. the 5% was paid back by the end of the year due to pent up demand.

I liked the mix. Candidly, I have 34 employees. There's five that I would lose right now if I could.

RE: Curious as to board preferences - Goose - 03-22-2020

(03-22-2020, 08:58 PM)Mick Wrote: In 2009, we did a combination of layoffs (30%) and 5% payroll reductions. the 5% was paid back by the end of the year due to pent up demand.

I liked the mix. Candidly, I have 34 employees. There's five that I would lose right now if I could.

As you may know, Jack Welch said you should dismiss the bottom 10% of your organization each year. This has led to endless parodies and assertions that you must therefore in the end fire everyone. Many companies say "We have the best, most ideal workforce in the world". While in some cases that may be true, in most cases it isn't. I don't buy the 10% idea, but every organization should look at it's people and ask themselves "Does employee X have a future here?". Many times, the truthful answer is no. It may not be their fault. It may be a fit issue. It may be that the company just can't seem to find an optimal way to use them. It may be that the employee has miscast themselves and has unrealistic goals. However, you aren't doing them any favors by keeping them. I have had to sit down with friends and tell them that the truth was that they just weren't ever going to "make it" in the company. Several of them resigned. Some were really not happy. However several of them thanked me a few years later. They had found a place where they could thrive, which they couldn't have found had they stayed. We are still good friends. If it isn't working, or isn't working well, it is better for all concerned to recognize it and move on.

RE: Curious as to board preferences - CardinalSagehen - 03-23-2020

(03-22-2020, 09:26 PM)Goose Wrote:
(03-22-2020, 08:58 PM)Mick Wrote: In 2009, we did a combination of layoffs (30%) and 5% payroll reductions. the 5% was paid back by the end of the year due to pent up demand.

I liked the mix. Candidly, I have 34 employees. There's five that I would lose right now if I could.
As you may know, Jack Welch said you should dismiss the bottom 10% of your organization each year. This has led to endless parodies and assertions that you must therefore in the end fire everyone. Many companies say "We have the best, most ideal workforce in the world". While in some cases that may be true, in most cases it isn't. I don't buy the 10% idea, but every organization should look at it's people and ask themselves "Does employee X have a future here?". Many times, the truthful answer is no. It may not be their fault. It may be a fit issue. It may be that the company just can't seem to find an optimal way to use them. It may be that the employee has miscast themselves and has unrealistic goals. However, you aren't doing them any favors by keeping them. I have had to sit down with friends and tell them that the truth was that they just weren't ever going to "make it" in the company. Several of them resigned. Some were really not happy. However several of them thanked me a few years later. They had found a place where they could thrive, which they couldn't have found had they stayed. We are still good friends. If it isn't working, or isn't working well, it is better for all concerned to recognize it and move on.

Totally agree with the conventional wisdom of this, in normal times. It’s what I would strive to do, too, and it’s what I would want done with respect to my own performance.

But if we’re in for a time of great scarcity with 20% or 30% unemployment for a few years - which I don’t think we are, but it’s well within the realm of the possible - then you would be considerably more likely to lose a friend for talking straight and cutting them loose. Let’s hope we don’t end up there.

RE: Curious as to board preferences - Snorlax94 - 03-23-2020

One thought: if anyone is making a decision very soon, it might be worth waiting to see what passes in the upcoming stimulus bill.

In the last drafts, I see $350b in small business support in the form of sba loans that would be forgiven for companies that can demonstrate a 25% revenue drop and that kept employees, with the expectation that the loans would be forgiven (in a way, just using banks/sba loans as a means to process the checks). But, I’d really want to understand the terms and conditions first.