By Perminus Wainaina
2019 was a tough year for many businesses in Kenya. I am sure you’ve read in the newspapers and social media how this company or that is ceasing operations. As someone who interacts with employers daily, I can confirm that indeed many businesses in Kenya are struggling to stay afloat. As to the reason why, this is a topic we can discuss in another forum.
I project that this year will not be any different. This calls for businesses to make a wiser decision when it comes to their operations and most important on how to manage their strategic asset –i.e. the staff and associated costs.
Salaries and wages are one of the highest costs of every company and are often the most difficult to control. But changing compensation is touchy for those who are affected, so it is crucial to handle the changes with compassion, truth, and firmness.
So, where do you begin when it comes to managing your staff costs?
The following tips will lead you through a difficult, though necessary process to ensure your company is positioned to survive and thrive in any economic environment.
1. Review of Annual Salary Increase
Salaries and wages tend to move one way: upwardly, even though markets and financial conditions change. Review your pay structure to be sure they are in line with current trends, not the result of history. If current employees are earning more than what would be paid for their jobs today, delay or make only token raises until such time that your payroll comes in line with current trends. Consider conducting a salary survey every two years. A Salary Survey is used by companies to determine fair and competitive compensation for a position. The survey contains compensation data based on position, industry, location, size of the company, and several other variables. The data will ensure that you are not under or overpaying.
Have a frank talk with the employees affected so that they know what to expect and why their expected raises will not happen as in the past.
2. Reduce Employee Turnover
If you have significant turnover, you have excess costs in your operation. In a market where you have more job seekers chasing fewer jobs, as employers, it is easy to assume that the cost associated with replacing staff is minimal. While the direct costs may be minimal. Think of the indirect costs. The indirect and invisible costs are poor quality, longer production/delivery times as the new staff settles, greater waste, greater oversight, and even fraud since your employees view their time with you as temporary. Maintaining a stable employee core is the key to effective cost-cutting.
3. Cross-Train Employees
Specialists – workers with a unique skill– generally command premium pay in the marketplace. But they also inhibit your ability to make changes in your operation. Do not be dependent upon a few individuals and their skills. A workforce trained to perform a variety of operations will enable you to make changes, including layoffs, without affecting your ability to deliver products or services to your customers.
4. Invest in Training
When businesses are struggling, there’s a natural tendency to cut marketing and training costs. While at face value, the two might seem like unnecessary costs, I believe If well thought out you can reap huge dividends. I am not a marketing expert, but I think if you ‘hide’ from your customers when things are tough, they will also not remember you during times of plenty. That’s why brands like Safaricom will continually invest in being visible. The same can be said of training your employees when things are tough; that’s the time to make sure that your sales staff have the skills to close. That’s the time to ensure that your staff ups their customer service skills to ensure repeat business. And lastly, train your managers and leaders to be better managers.
5. Where Possible, Convert Fixed Salaries and Wages into Commissions
Rather than terminating employees, try converting their costs into an expense that is only paid when there is accompanying revenue or target being met. For example, a salaried salesperson may be willing to accept a higher commission rate and less salary.
6. Periodically Review Your Processes
As companies grow, they often evolve into a group of independent departments, effectively eliminating inter-departmental communications and flow. In many cases, the same task is repeated in several departments. Periodically review your processes – to ensure minimal duplication between separate functions.
7. Test The Waters Before Hiring New Employees
Before hiring new employees, consider whether your current employees can do the work if they are available. If so, try to expand your delivery deadlines and/or add overtime. Most employees enjoy the extra pay. Compare the costs of overtime pay with the full costs of attracting, evaluating, hiring, and retaining new employees. At some point, if the high demand continues, you will be able to hire new people secure in the knowledge that there’s a need.
Cutting significant costs in a company is akin to squeezing a balloon: As you pressure one area, another gets stretched. As a consequence, you must be attentive to unexpected consequences and be diligent in your implementation.
Communications with employees before beginning a cost reduction campaign, with frequent updates, is critical to avoid wild speculations and destructive rumours among the staff. Tell them why the change in policies affecting costs is necessary and what you hope to achieve as a result of the move, and encourage their participation and ideas in the exercise. Being involved, rather than being a victim, will maintain their commitment to the company and solidify your role as a leader
Perminus Wainaina is a Certified HR Consultant and the Managing Partner at Corporate Staffing Services where he manages a team of 25 staff. He helps CEOs, executives, and managers solve their HR pains, dysfunctions, and key challenges for business success.