Cost-Cutting Strategies in the Downturn

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Companies are struggling to balance persistent pressures to cut costs with ongoing talent management needs in response to the sour economy, according to a recent pulse survey of nearly 700 HR executives in the U.S.

It’s not an easy task and requires picking cost-reduction targets carefully. Leading organizations considering additional staffing actions need to carefully assess people’s roles and contributions — especially in terms of their importance to the organization’s strategic focus and growth agenda — to ensure they’re not making cuts that could have an adverse impact on the business over time.

Key findings

The survey identified these trends:

• In the first wave of cost cutting, which began late in 2008 and continued through the first quarter of 2009, respondents took a fairly traditional approach, with salary freezes for the overall workforce (59%) and no salary increases for executives (59%), as well as tighter bonus criteria for executives (41%). This can be seen in the exhibit.

•  Looking ahead to actions that may be under consideration, the emphasis appears to be on unpaid leave (voluntary or mandatory), a shorter workweek and other more flexible arrangements.
• Training programs remain a tempting target, especially those covering the broad workforce.
• Companies are tailoring their approaches by workforce segment, with emphasis on outside contractors to replace professional/technical staff, a shift to part-time work for nonmanagement staff and cutbacks in compensation for senior management.
• Only 18% definitely do not plan to maintain their cost-reduction programs when the economy turns around.
• Employees appear to be generally supportive of efforts to cut costs.