You might think that when unemployment is high, motivating your employees to stick with you and work as if their hair is on fire should be a breeze.
But if employees who've already seen mass layoffs or pay cuts fear that your business might fail or that more layoffs are likely, they'll be quick to jump to any job that looks more secure. If your post-layoff workplace is poorly functioning, tense, and joyless, they are likely to leave even faster.
So how do you keep productive employees working for you as long as possible when your business is shrinking and you might even have imposed pay cuts? Start with a simple fact: If your employees feel fairly treated under the circumstances and believe you have set a course to outlast the economic downturn, they're far more likely to stick by you.
Table of Contents
In good times or bad, your business will suffer if you don't keep the loyalty of your best employees. Just as it takes many small business owners three to five years to really hit their stride, top-notch employees—even those who can do skilled work from their first day—become more valuable every month they work for you.
Long-term workers build a valuable mental database of useful information about your products or services, customers, coworkers, and suppliers. If they move on, you lose everything they know.
To fully appreciate how valuable it is to keep good employees for as long as possible—especially during hard times when you have no time to train replacements—think about your own relationships with local businesses. If you've been dealing with the same competent person year after year, it's frustrating when that familiar face (or even familiar voice) is replaced by a less experienced one.
The decision to make layoffs challenges the employer-employee relationship and you, as the business owner, need to respond delicately to keep your remaining employees' loyalty. So be fair, communicate, and listen.
"Fairness" is the best one-word prescription for keeping employees loyal to your business.
Workers who believe your business can be trusted to treat them equitably are likely to be loyal; those who feel they're in untrustworthy hands are almost sure to move on. This feeling goes double when times are tough, unemployment is high, and your business is obviously struggling.
Basically, your business should use objective criteria—not whim or emotion—to hand out rewards and punishments. Put another way, it means that your business establishes and follows a set of employment policies that are understandable, consistent, and evenhanded.
For example, if you lay off a long-term, experienced employee but keep your lazy cousin, you risk convincing everyone in the company that despite your rhetoric about fairness, you can't be trusted. But if you adopt a merit-based system of promotion and stick to it—even though it means your cousin is let go—you go far toward reassuring all employees that they'll be treated fairly. True, your aunt might snub you at the next family gathering, but that's a small price to pay to run a business that your employees will respect and stick by.
When it comes to wages, most employees use three factors to judge whether they're being fairly treated:
It's important to grasp just how essential it is even for employers with just a handful of employees to create logical, understandable, and defensible pay policies.
While it might make sense to reevaluate your company's policies during layoffs, for some, it might not be the right time. Some companies might find it useful to consider how staff cuts might affect their overall pay policies. But others might choose not to add the difficult task to their already lengthy, post-layoff to-do list. Regardless of layoffs, it's a good idea to review and update your pay policies on an annual or periodic basis.
When you create and reevaluate your company's pay policies, consider consulting a human resources specialist. They can help you identify the changes needed, notify employees of the changes, and provide additional resources to both you and employees.
If a change in employment law has triggered a policy change, it could be a good idea to also reach out to an employment lawyer for guidance.
When people have been laid off (or if employees expect them to be), many of your employees will be fearful. It's no secret that if allowed to fester, these kinds of worries can have a seriously negative effect on your business. Productivity drops when people are distracted and anxious (or spend work time on online job sites), and your best employees could leave for what they perceive to be greener pastures.
To counter decreased productivity and early exits from employees, you need to honestly communicate how the business is doing, whether the news is good or bad, and do so quickly and often.
You can follow these steps to navigate the choppy waters of communicating layoffs to your remaining employees once your laid-off employees have been informed:
Once you've informed everyone about the layoffs and have fielded initial questions, it's time to open the floor to ideas and suggestions for how your business can grow stronger. As the business owner, your job is to lead the discussion, not to control or monopolize it.
Everyone associated with your enterprise will be happier and your business more productive if you're a frugal, hardworking leader, not a privileged dominator. At all levels of our society, leaders who work hard and are in touch with ordinary people command loyalty and respect.
If your employees regard you as a decent human—and not just the big boss—they'll be far more willing to share their thoughts about how to improve the business, something that can be crucial to your survival in a severe downturn. No doubt some ideas will be more helpful than others, but you're likely to find a few good ones mixed in with the less sensible ones.
To make employees feel comfortable sharing their thoughts and to capture the best ideas, you need to:
When implementing new ideas, be sure you include key employees in the process. New policies and procedures carried out with the input of the people who'll have to cope with them day to day are not only likely to be more successful—but they're far less prone to be sabotaged. Remember, employees who don't buy into new ways of doing things can always find ways to subvert them.
Far better to run your enterprise with a strong purposeful center at the same time you invite and respect employees' opinions, and treat them with dignity.
When employees are on edge and morale is low after layoffs, it's more important than ever to invest in workplace climate. Show employees that you appreciate their hard work and recognize their achievements. If you encourage a positive work environment, employees will want to show up every day and give their all to a company they respect and enjoy.
It's simple, really: Employees strive to do better when they know their hard work and creative contributions are noticed. Showing appreciation is even more important when business is grim and you're asking everyone for a little extra. Those employees whose good work isn't acknowledged are likely to conclude that there's no point in busting their butts.
So whether you have five, 55, or 105 employees, develop an employee appreciation program. To make sure your program will be welcomed by your employees, it's best to create it with their input. If you don't, you risk adopting a plan that'll be ignored or resented.
For example, if your well-meaning plan to pay bonuses to salespeople who bring in new business is regarded as a cynical ploy to make your overworked employees put in extra hours, you're unlikely to achieve your objective.
Finally, during tough economic times when everyone is forced to pinch pennies, it's best to keep your appreciation efforts simple, sincere, and cheap. Many rewards programs are designed (or at least seem designed) to influence or even manipulate employees' future behavior, rather than to simply acknowledge their good work.
Even if you don't create a formal appreciation program, you can show your appreciation in a few simple ways:
Hogging credit for the business's achievements is a huge and common faux pas of small business owners. Just as professors are sometimes guilty of putting only their names on research done largely by their graduate students, owners of small enterprises are far too prone to act as if they alone made the business a success. Few things are more disappointing and insulting to employees who've worked hard and creatively to help build the company.
Try to foster a culture in which leaders go out of the way to acknowledge everyone's contributions. If those efforts mean that your company meetings sometimes sound like a roll call of every employee's achievements, so much the better. People work more creatively when they know their efforts are acknowledged and appreciated—especially when, in a recession, they're asked to work harder for less pay and benefits.
Here are just a few ways to foster this attitude:
It's crucially important to encourage a culture of "we," not "me." If, when the limelight goes on, you can learn to step aside and nudge someone else forward, that's a good start. But to really help people feel appreciated, you'll need to go beyond fancy words and empty "employee of the month"-type programs to show people you really do value them.
In addition to paying decently, rewarding superior work, and providing good benefits (especially health care for all employees), adopting a simple stock option or other employee ownership plan can be the best way to literally put your money where your mouth is. That way your employees really do know that your business is about them, not just you.
When money is short and you're chewing the insides of your cheeks with worry, it's easy to transfer your grim mood to your employees. If you do, your employees are in turn likely to transfer it to your customers—never a wise move when you desperately need customers to purchase more.
To avoid creating business-killing gloom, it's important to understand how actually encouraging workers to enjoy themselves can be a powerful motivator.
Because workplace environments vary so much, the best advice is to find simple ways to let employees enjoy themselves, and then get out of the way and let it happen. Start by loosening up a bit yourself. For example, if, on Halloween, you plan a costume party and bring in some spooky treats to share, people will likely get the idea.
Once you've cut staff, all eyes will be on you. Your employees will look to you for direction and reassurance. And in their understandable unease, employees will also look closely at your behavior to make sure they can trust you—and subsequently, the business they work for—moving forward.
You've made the difficult decision to cut your workforce, and you need to make it count. If you were living extravagantly before the layoffs, it's time to cut back and to put your business—and its aspirations—first. Be a role model and remind your employees why they got into their line of work in the first place.
Your employees and those who do business with you pay attention to how you spend money, especially when the business experiencing cutbacks is footing the bill. If you wear designer clothes, drive the biggest Beemer, and have your business pay your country club dues, you'll find yourself short of loyal employees.
You could also risk offending your banker, key suppliers, and customers, who sooner or later are likely to figure out that they're paying for all those perks. The more ostentatious you are, the more harshly you're likely to be judged.
You might not need to sell your beloved sports car or cancel your club membership. But be aware that if your business is facing financial difficulty and you're asking others to make sacrifices, your employees likely don't want to hear about your vehicle upgrades or upscale, members-only lunches.
Employees of successful small businesses are almost always imbued with a strong sense of purpose. It doesn't matter if you make or sell booties, bibles, or bagpipes—the key is to instill your company with a commitment to excellence, something that is especially important to maintain when a business is struggling financially.
There are several tried-and-true methods to help your employees believe in the value of their work. But no amount of cheerleading will work unless they really see that you run a high-quality operation.
For example, if you claim your café serves the freshest baked goods in town, but now that sales are down you occasionally slip a few day-old muffins in with today's batch, you'll begin to alienate your own employees.
If you do run a quality operation, helping your employees create and participate in a larger vision will go far toward cementing their loyalty. No question it can be tough to stick to the bigger picture when you're fighting for every dollar, but it's not impossible.
Once your cash flow has stabilized and some revenue has returned, you might be tempted to quickly reverse the cutbacks you made, like hiring back employees you had to lay off. But before you think about increasing expenditures, your business not only needs to return to profitability, but also to dig itself out of its financial hole.
In many instances, instead of restoring benefits or hiring more employees, it might make sense to invest your money in other business needs, such as:
For example, if you borrowed $50,000, deferred the purchase of $25,000 worth of new equipment, and failed to repaint your tatty-looking building, you've got lots to spend money on before adding to your payroll expense.
A second reason not to restore jobs and pay too quickly is to avoid the possibility of a double dip. If, after a couple of months, your business again underperforms, it'll be emotionally devastating to you and your staff to have to reimpose cuts.
To say your credibility as a leader will be shot is an understatement. Besides, if you did a good job with your layoffs—cutting your least important functions and your most inefficient people—it might not make sense to reverse these decisions, no matter how much business prospects improve.
Layoffs are messy and come with their own stack of paperwork. Before you deliver any layoff notices, it might be a good idea to speak with an HR specialist or even an employment lawyer. An HR specialist can help you with the layoff procedure while an employment lawyer can give you clarity on your employees' rights.
If you're in the post-layoff phase, it can still be useful to seek guidance. You can run any workplace changes by an HR professional. For bigger legal shifts in policy, talk to an employment law attorney.
Need help? Start here.