Keeping Employees with Lean Budgets

When budgets get tight, it is very easy to make penny wise, pound foolish mistakes with employees. Handling the situation strategically can help you turn the situation around and keep your employees.

Every company goes through lean economic years. Even in a relatively good economy, some industries hit hard by VUCA and disruption as they adapt to change mean that the business has some tough choices as they work to keep the business going. How an organization adapts in these lean years will determine whether or not the business succeeds or fails, and a lot of this answer comes down to how businesses treat employees.

The first thing that tends to go out the window during these lean times are the most closely related to the bottom line: pay raises and bonuses. If your pay structure was adequate and competitive prior to the arrival of lean times, your company and employees can withstand this for a while. Yes, cutting bonuses or limiting pay raises to cost of living adjustments can be demoralizing for your employees, but done correctly it can be used as a way to strengthen relationships across the company and inspire your people to get more creative about solving the problems your business faces. There is a HUGE caveat here I’ll get to in a minute.

If you are a manager in this situation, how can you keep your employees from walking out the door when their raises or bonuses are hit? That is where you have to get creative if you want to keep your employees…and make no mistake losing employees is expensive.

When I was the Executive Director of a Non-Profit Organization, this is the world I lived in. Pay raises were extremely hard to justify, and most of the time they simply were not an option because of the razor-thin budget lines we were working within. And yet, despite only being able to give small raises once during my three year tenure as Interim and eventually as Executive Director, I only lost one employee and her loss was due to severe health issues and eventually physician orders that she retire. During my tenure, I was also asking staff to work harder than ever before on a  project that involved replacing 25% of our permanent exhibit space, serving as the first museum in the state to host a traveling Smithsonian exhibition and coordinating with the five other sites in Kansas to arrange travel and training related to the exhibition.

How on earth did I manage to accomplish all of this and not lose employees? In essence, by following the Don’t Be An A*hole rule, which is really just an updated version of The Golden Rule.

  • Transparency –  I made the entire budget available for staff and sat down with them to discuss ideas for shifting funds more strategically. I never hid the fact that the budget was tight, or took it as a sign of weakness or failure that it was. It was merely the situation, and we needed to address it.
  • Benchmarking – I used the budget as a strategic document, not merely a spreadsheet. I set benchmarks within certain line items (like Admissions Collected), and if we hit those benchmarks, bonuses or raises were distributed.
  • Flexible Scheduling – I did not get pedantic about paid time vs. worked time, even for hourly employees. If someone needed to leave a few hours early, they could leave and I would pay them for a full shift. They were getting their work done and hitting their performance goals, so hours clocked did not matter as much. Plus, treating employees like adults rather than misbehaving children is just good business practice.
  • Extra Gravy – There were many a nights and weekends during exhibit tear-down and construction where we all had to work extra hours. When that happened, I called into town and provided pizza, subs or other goodies for everyone who stayed. Sure it cost some money, but I recognized that my staff and volunteers were giving up their dinner to help get this project done, and the least I could do was provide them with the dinner they were missing.
  • Training – If my employees wanted to watch a webinar or get some training materials, I would provide them. If I was taking webinars, I would always let staff know so they could join if they wished. While most of my employees were older and career advancement was not as big of a deal for them, they did appreciate learning new things they could apply to their jobs immediately and it made them feel valued.
  • Being There – This is perhaps the most important; everything the staff was doing I was doing to. We were always working together, giving up nights and weekends together to get the job done. I wasn’t putting out scripted, We’re all in this together! speeches and then disappearing into an endless series of meetings or hiding in my office. I was visible, working side by side with my staff, and that let them know that I was working just as hard as they were.

Unfortunately as I moved on in my career, I saw more and more instances of employers handling these types of lean times very poorly. The budget becomes all-important, and suddenly companies are making mistakes like shrinking raises and raising costs of existing benefits. Sure, it looks great for the bottom line of the company, but your employees will notice very quickly that they are actually losing money working for you, and they won’t tolerate that for long. Mishandle these situations, and your staff will flee, starting with your highest achievers who can easily take their skills elsewhere. That creates a cascade of operational issues that make the lean times even worse.

That caveat I mentioned? Here it is: Your business can survive decreases in raises and bonuses for a time, but only:

  • If your pay and benefits were adequate and competitive before the lean times started.
  • If the adjustments you can give are at least equal to inflation.

If either of these are not the case, reducing raises is simply not an option if you want to keep your employees. In the first case, reducing pay in an already noncompetitive pay structure leaves your employees wide open to poaching by rivals and other businesses. In the second case, pay adjustments which do not equal inflation results in employees losing money working for you. If either of these is the situation you are in, limiting pay is not an option if you want to avoid high turnover. Time to move to a different plan…and fast. And once your lean times pass, you will need to take a good, hard look at how your employee compensation structure can be adjustment to make it competitive, or else risk losing your best employees and increasing your recruiting costs by not being able to attract the talent you need.






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