Hidden Dangers That Can Cost Your Company Over $2 Million

Hidden Dangers
That Can Cost Your Company
Over $2 Million

By: Gary Perman

Published in the April issue of Board Watch Magazine.

The Corporate decision has been made: You have to cut jobs and downsize to save money during this economic uncertainty. But Wait… before you cut jobs to save money, be aware of the dangers lurking around the corner….

There is a new danger in the market place today. One we haven’t experienced during any other slowdown or recession of the past. In a company’s attempt to cut costs and reel in expenses by downsizing employees; cutting the fat and some meat to run a leaner organization, executives and managers are overlooking a very real threat to their bottom line.

For the past few years, the big challenge for telecom companies has been recruiting qualified employees to fill the their desperately needed open positions. Managers also had the extra burden of trying to convince employees to stay – as more and more companies entered the market, luring employees away with promises of stock options, a Ferrari, homes, and riches beyond their wildest imaginations.

Now many of these same companies have been acquired, merged or bankrupt. Many companies including almost all telco’s are experiencing staff cuts of 20-30%, using this tried and true attempt to slim down, stay competitive and stay in business. Although not a new concept to business, there is a new dilemma occurring; The fear that you may lose those employees you didn’t lay off – your current and critical top talent. Managers who ignore the human toll of layoffs – for those who survive the cuts as well as those who are hit, will likely find themselves with angry and anxious staff at a time when they need teamwork more than ever.

Following a layoff is critical for survivors. If the perception is that the company handled this in the best way possible and that more lay offs will not follow – you’ve gained an important part of continued retention. Communication is critical! The challenge will be finding ways other than salary boosts and stock option incentives, to keep survivors motivated and avert a wholesale exit from your company. A recent study in the Harvard Business Review states that with a downsizing of jobs, a company can expect 10-15% of survivors to leave. Why? – simple – they don’t trust you. Why should they, they just saw several of their co-workers leave. Who’s to say they won’t be next.

I had a seasoned executive ask me ” I’ve been through downsizing before, why is this any different?” The difference is in the economic slowdowns of the past, talent was readily available, waiting in the wings. If you lost another 15% of your surviving talent – you could easily dip into a well stocked talent pool. Today, companies don’t even have a talent puddle to draw from.

The real danger that should shock any executive is the amount of money their company loses when 10-15% of surviving talent exits the company. The numbers are staggering. Here’s an example of a recent CLEC client of mine.

This CLEC had 300 employees. To make the math simple, let’s say every employee earned $50,000 per year. Due to economic conditions in the telecom industry, they were forced to lay off 30% of their workforce (100 people). They feel they can run efficiently with the remaining 200 people. Their savings would be equivalent to $5 Million. Pretty good savings. What they didn’t expect was to lose an additional 10% (30 indispensable people).

The cost to replace an employee, using a conservative figure is 1 times a persons’ salary (according to Princeton, N.J. consulting firm Sibson & Co). Many positions, such as executives and sales people can cost up to 4 times a person’s salary to replace them. So using the most conservative figure on my client company, who has had to go out and replace the 10% they lost: 30 people x $75,000 ($50k x 1.5) = $2,225,000. OUCH! This is an amount that should scare the pants off any executive and should make them sit up and take immediate action to find solutions in retaining the indispensable talent of a company. Imagine the large companies that employ 200,000 people and cut 5,000 jobs. That’s an estimated loss of $ 1.5 Billion !!!

“So How Do I Keep People From Leaving My Company?”

The answer can be quite simple, but many times the hardest for managers and executives to execute. You must realize that your top talent is anxious about your recent cuts and lay -offs. They are also being pursued and courted by headhunters and your competition. The most important ways are often the intangibles ones that cost little to execute.

As in life, it’s the little things that count… such as praising good work, involving employees in the decision making process and giving employees personal latitude to contribution to the company. Why is this so hard for managers and executives? Ego, pride, bad habits, “Industrial Age” thinking, and poor managerial skills. Let’s face it, Some people just shouldn’t be managers.

If you want Loyalty….Buy a Dog…stop blaming the employees for leaving. It’s not their fault. Gone are the days when an employee would stay at a firm and make it a career. It’s no longer true in professional sports and no longer true in the world of business.

There is an amazing amount of ignorance and arrogance still demonstrated today by managers who criticize workers for their lack of loyalty to a company. Management has to realize that top talent is in high demand in a highly competitive market. Top talent at telecom firms, for an example, get an average of three calls a week from recruiters.

Assuming that your top talent is not going to get a better offer is arrogant. Assuming that top talent is not looking is naive. Take it as a given that your employees receive continuous offers. Your job as a manager then becomes relatively simple. Your job is to make the best offer come from n your firm instead of your competitor.

Re-recruiting your top talent!

“My God, I’ve already spent a considerable amount of time and money recruiting my top talent, now I have to re-recruit them too?” Yes! Re-recruiting is simply applying the tools and strategies of external recruiting to your current employees. It means that instead of waiting and then having to compete against other offers, a manager proactively makes a positive work environment and also makes a compelling internal offer to its top talent on a periodic basis.

The re-recruiting process includes:

Assume the best are getting recruiter calls and outside offers. Adopt the strategy that no-one will stay at your firm longer than one year without being re-recruited, and no longer than 1 month after a layoff. Drop loyalty from your vocabulary and assume you must continually excite top talent if you want to keep them.
Identify which employees are in high demand. Ask your internal recruiters and outside recruiters to help you identify hot jobs and individuals whom maybe at risk. Consider searching the web to identify which of your own employees are currently looking.
Ask your current employees to help you to keep the team together by identifying those they feel are at risk of leaving.
Identify the elements of typical offers for each key position by looking at the “other” offers that your new hires received. Ask executive recruiters to periodically update you on the offers that other similar professionals are getting in the outside market.
Look for signs of discontentment in your employees and if found, address them upfront.
Tell your current employees how important they are on a periodic basis. Ask them what they would like to be doing, what they do like, what frustrates them in their current job and address these issues.
Never threaten them. I know of a company that lost a few engineers to outside recruiters. They then mandated to all employees that if a recruiter calls them, they are required to notify the CEO immediately – failure will result in immediate termination. If you want to retain your top talent, don’t threaten them.
Prepare a personalized offer for each of your top employees and deliver it to them on a periodic basis (3-12 months). Retention bonuses, raises, individualized perks – like flex time, telecommuting, issues that are important to them.

With a 4% unemployment rate, top talent has become “free Agents”. The negative image of “job-hopping” is gone. Instead of being upset that your top talent is getting offers, look upon it as a sign that you have hired and developed your talent to the point that everyone wants them.

Your job as a manager now becomes a bit easier. Tell your top talent how important they are to the firm and continually provide them with compelling reasons that are superior to the external ones they are invariably getting. Those that hesitate will lose!

Gary Perman is President of Perman Technical Search Group, a national search firm that specializes in recruiting Executives to Engineers in the technology industry since 1996.
If you have questions about this article, feel free to contact him at [email protected]

Gary Perman is the President of Perman Willits Langone, a national search and management consulting firm specializing in Telecom and Emerging Technologies with offices in Oregon and Washington. Mr. Perman speaks nationally to telecom companies and at conferences on the subjects of employee attraction and retention, as well as consults companies on key retention issues. He can be contacted at 360-835-2205 or by email below:

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