wpphoto_klehman.gifWe are in the midst of the worst economic environment in most of our lifetimes. Some businesses are facing such challenging circumstances that only draconian measures, like massive layoffs and dramatic downsizing, will give them a shot at survival.

However, enterprises that wish to be best positioned when the eventual recovery takes place should consider “sharing the pain” as the preferred first response to current adversity.

“Sharing the pain” can be thought of as a social contract between workers and employers in which the former agree to wage cuts and other concessions so that layoffs can be avoided and organizations can face the future intact.

What does it look like in practice? Cari Tuna provided some examples last month in a Wall Street Journal article that framed the struggles of Hypertherm, a New Hampshire-based manufacturer of metal-cutting equipment. Having never laid off even one worker in its 40-year history – a point of pride within the company – Hypertherm is transferring employees whose departments are softest to parts of the company that are busier. They are also considering bringing some currently outsourced manufacturing in-house.

Some of the other options Tuna cites that businesses might consider, in lieu of layoffs, to keep people on the payroll until conditions improve include:

  • Freeze hiring
  • Reduce hours/4-day workweeks
  • Delay raises or cut salaries temporarily across the board
  • Eliminate bonuses
  • Offer early retirement packages
  • Cut temporary staff

Winning Workplaces has also written about these additional strategies on our blog in recent weeks:

  • Implement unpaid vacations
  • Cut pensions, profit sharing or 401(k) contributions
  • Gather input from stakeholders regarding discretionary spending cuts
  • Solicit employee ideas on revenue generation
  • Engage in job sharing
  • Buckle down on product/service quality
  • Initiate or expand lean initiatives to improve operating efficiency

While the strategies that can be considered sharing the pain are many, it is important to note that this practice may not be right for all organizations in all scenarios. That said, if the current recession turns out to be very long and deep and a business finds it must take further action, the fact that sharing the pain was tried first makes the next steps more palatable for all stakeholders involved, especially employees. For one thing, those who stay after one or more round of layoffs will be better equipped to mitigate the dreaded “survivor syndrome.”

Our Top Small Workplaces understand the value in sharing the pain as a first step. In a webinar Winning Workplaces hosted last month on maintaining a stable workplace in an unstable economy, Bill Brett, President of 2007 winner Barclay Water Management, a Massachusetts-based water treatment firm, emphasized the outcome of holding onto stakeholder relationships, which are more important now than ever:

I think many businesses today underestimate the value of human capital. I’ve got to believe a lot of very talented, experienced employees with relationships are being severed because publicly owned companies cannot afford or cannot justify a temporary drop in profits.

If you’re in a service-intensive business or you’re in a business where relationships are important – and I think many businesses are, whether they acknowledge it or not – laying off people is a very expensive way, long term, to grow your business.

Note Brett’s mention of publicly traded firms; the use is not unintentional. Small, privately held companies have a significant advantage over their larger, publicly held peers when it comes to sharing the pain because the latter must worry about their stock price. Laying off workers, rather than pain sharing, can produce a temporary stock price boost. But there are longer term risks.

Two more of our Top Small Workplaces avoided layoffs and benefited by being frank with their employees. The talent they were able to keep have helped their businesses thrive when conditions improved after previous market downturns.

2008 winner JA Frate, a light trucking company from Illinois, and 2007 winner Corporate Ink, a technology-industry specific PR firm from Boston, met with their employees when times were especially tough in recent years and negotiated pay cuts in order to avoid layoffs. Everyone, including the CEO, took a cut.

The payoff for both companies came when times improved. Beyond the pay element for workers (restoring their full wages), the firms were in a better position to pay themselves when conditions improved – while their competitors were scrounging to hire back competent talent and, as Brett alluded to, re-develop relationships with their stakeholders.

So as 2009 gets underway and we continue to see news of falling stock prices and rising unemployment, consider bucking the trends of publicly traded firms by engaging in a dialogue with your workers to come together around how you can all share the pain to survive this economic crisis. The result can be heightened respect by employees for their workplace and appreciation for the opportunity to participate in the search for solutions to challenging business issues. By taking this approach, your organization will likely be better positioned for future growth when the eventual recovery occurs.