The DOs and DONT's of Cutting Compensation Costs

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Jessica Miller-Merrell, blogging4jobs

Our economy has come a long way in the last couple of years. Things are definitely looking up, but some companies are still feeling the pain. If you're experiencing the pressure to cut costs, you're not alone. The recent sequestering on the federal budget is the perfect example of making difficult decisions to make ends meet. When those tough decisions need to be made, chances are, you're the one your company turns to.

But how do you know where to trim the fat? Do you focus on the most expensive budget items or do you make small cuts that will add up? If you find yourself in a similar predicament, here are a few areas of your compensation package where you should and shouldn't cut costs.

Don't: Cut Health Insurance

This may be one of your most significant expenses depending on how much of your employees' plans you cover, but it's not the place to make drastic cuts right off the bat. Health care coverage is such a vital part of your employees' benefits package because for many, it's not a luxury, it's a necessity. Unfortunately, many companies are making big decisions when it comes to health care. Wendy's, Hobby Lobby and Papa John's are just a few that have recently cut employees' hours so they won't be required to provide coverage under the new Affordable Health Care Act. Just last week I came across a Facebook post revealing that a call center was doing away with health insurance for their hourly employees. Since the woman who posted about it and her husband both work for the same company, they are losing the coverage for them and their two children.

While it seems like a financially-responsible decision, companies making these cuts will see that it has negative effects both immediately and in the long-term. As far as immediate effects go, employees are likely to feel betrayed by an employer whom they have invested years with cutting their health care benefits and may even need to seek employment elsewhere if they absolutely require health care coverage. If your employees stick it out, you may actually spend more in the long-term if those employees encounter significant health issues later in their careers because they didn't receive proper preventative medical care.

Do: Suspend Tuition Reimbursement

This may sound tough and heartless, but when something's got to give, this is a good place to start. When cutting costs, focus on the things that are costly and not vital, like tuition reimbursement. Don't do away with your tuition reimbursement program completely, but instead suspend it. Education is a valuable thing, so you don't want employees to think that you are de-valuing it or that personal/career growth isn't important to you. For this reason, exceptional communication is key.

Explain why this change is taking place and offer assistance from your HR department if employees would like help in seeking out other tuition assistance, such as grants and scholarships.

Don't: Nix the Small Things That Boost Morale

While it may seem like a no-brainer to cut out things that aren't necessities, try to keep these around. Whether it's a soda fountain in the break room, donuts on Fridays or some other small expense, taking these etchings away will make your budget cuts hit close to home for employees. Those small, inexpensive perks that make your business special and different may help to keep employee morale up through a difficult time.

Sure, something's got to give when you're faced with the choice of where to cut costs, but don't immediately take away all the perks your employees have gotten used to. You may even want to give employees a choice of what they would prefer to keep and what they could let go of. I favor being as transparent and candid with employees as possible, so if your employees know that costs are being cut, use a survey to find out what they would cut. Do they prefer to do away with the free lunch at your monthly lunch-and-learn or would they rather see the discounted dry cleaning service go?

Do: Adjust Pay and Schedules

Before you make the ultimate decision of laying off employees, try making adjustments to employees' pay. This is certainly a tough pill to swallow, but the majority of employees would probably prefer it over lay offs. If you are forced to reduce pay, offer alternative schedules to reflect the pay change. Grant salaried employees time off every week commiserate to the amount of their pay reduction or allow employees to work from home one day a week as a thank you and acknowledgement for the sacrifices they are making.

If pay cuts are necessary, ensure that the change starts at the top down. We've all heard the stories of CEOs receiving bonuses while cutting employees' pay (Hostess, anyone?). Don't be that company!

It might be a stretch to say that cutting costs will be painless, but you can certainly make it easier for your employees to handle. Be strategic in your messaging to employees and think about people, not just numbers to make this process a bump in the road rather than a four-car pileup. 

What's happening in your business? Are you finding ways to cut compensation costs?

Jessica Miller-Merrell, SPHR is a workplace and technology strategist specializing in social media. She’s an author who writes at Blogging4Jobs. You can follow her on Twitter @blogging4jobs. 

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