Managing Compensation in Times of Crisis

Measures for Reducing Personnel Costs

Investments that are not immediately necessary are postponed for a later time. For Human Resources this generally means a hiring freeze for new staff. Additionally, costs for external consultants are significantly or entirely reduced, for example for executive search consultants.

The next step is the reduction of external staff who work for the company through staffing agencies. 

In reducing budgets companies will resort to mainly those activities where only low short-term effects are expected. In particular, the budget for Training and Personnel Development is often the first to be cut, since in many cases this will not have serious consequences if staff do not receive further trainings for 6 months. In some cases external trainers are replaced by more cost-effective internal trainers.

Since fewer assignments and projects need to be completed, payments for overtime can be reduced or entirely cancelled. Some companies take times of crisis as an opportunity to shift their staff from generalized or individually calculated overtime hours to all-in contracts. Another possibility to keep personnel costs under control is to institute a salary freeze. With this measure, however, the salaries of staff may not fall below wage agreement level. Furthermore, existing wage agreement increases must also be implemented.

Due to the poorer results most companies pay their employees lower bonuses. This especially concerns sales staff who have a higher share of variable compensation. If the bonus payments remain just as high despite poorer results, the bonus system is poorly structured.

Especially in production branches short-time work can be used for a short-term reduction of personnel costs in case of lower production. The benchmark here is between 3 to 6 months.

The salaries are often reduced along with but not equivalent to the reduced working hours, such as 90 % compensation for 80 % working hours. However, when considering implementing short-time work it should be noted that dismissals are not possible legally.

In order to achieve significant personnel cost reductions in the short term without having to dismiss staff, there is the possibility of persuading staff to agree to a voluntary deferment of their salary payments.  This measure can only be taken by mutual consent with the staff. If the staff refuse, the company can choose the option of dismissal with the option of altered conditions of employment.

In dismissals with the option of altered conditions of employment employees are dismissed and simultaneously given a new employment contract. The employee then has the choice of either accepting the (worse) new conditions or acknowledging the dismissal.

Dismissals are conducted in the following order:

> Low performers (in absolute terms or in comparison to the salary)

> Low qualified staff

> Back Office / Administration

> Central functions, such as IT, HR, Finance, Accounting

Sales people with good turnover even in times of crisis have the greatest job security. For “good sales people secure jobs, not least their own.“

In order to minimize the economic disadvantages for employees, a company can introduce a severance scheme, which is negotiated with the works council. In the severance scheme the company makes voluntary concessions to grant the employees being dismissed financial gratuities as compensation for losing their job. Severance schemes are intended to minimize social hardships. That is why for special groups there are usually special regulations, such as semi-retirement for older employees. Through severance schemes companies usually ensue costs of 30,000 to 40,000 Euro or in extreme cases even up to 100.000 Euro per affected employee.

War for Talents - Staff Retention in Times of Crisis

Whether economic boom or crisis: companies battle for the best talents at all times. No matter what the economy is doing, the topic is always the same albeit under a different name – ‘war for talents’ or the ‘best are the first to leave’. Good employees are the most important asset of a company. So even in times of crisis make changes carefully because you will still want to be able to look your people in the eye after the crisis.

It is worth investing in employees, even in times of crisis. After all, they are the ones who will lead the company out of the crisis.

Contact

Conrad Pramböck
Principal

Schottenring 12 / 5. OG
1010 Vienna
AUSTRIA
Phone: 0043 1 401 40 206
conrad.pramboeck@neumann-inter.com