For any business owner today, there’s often a misconception that your most powerful tool is your products or services. While that’s true to an extent, who delivers on those products or services? Your employees. Your employees are the ones who grind and work all day; who spend as much time as they can, putting in the hard work and the effort on your behalf.
So, what happens when you start to cut their salaries (hourly pay)? Or when you start to cut expenses by reducing employees’ numbers when it could be more productive to cut from elsewhere?
Simply put, your employees give up. And rightly so, in a way. If you work for a business (organization) where you feel neglected, and based on the business owners actions they seem disengaged from the value of their employees, why would you work hard(er) for them?
If you know the business owner see you as a temporary expense, not a necessity, then why would you go that extra mile? Will that work feel meaningful?
Sometimes it’s human nature. Some employees look back on the days where employees were essentially forced to do exactly as they were told or be terminated from the business. It’s not quite so simple as that now, though. If your employees feel that you have little interest in them, they’ll happily reciprocate that lack of emotional connection. And the cost of disengagement can be significant to your business’ bottom line.
As such, it’s vital that as a business owner you take the threat this poses to your business (and customer) pretty seriously. Instead of biting the hand that feeds, turn the scenario around the other way. Your employees are the ones who do everything for you; they are on the frontline, often the first point of contact for your customers/clients, and they work towards making your business as profitable as it is. If you repay them by reducing wages or something similar, then don’t be too shocked if your employees return the favour with vastly reduced motivation and productivity. When employees are disengaged, they are not emotionally connected, and when you don’t care about what they do for the business, all the policies you put in place will not be adhered to.
Don’t Make Expenses Expensive
Most businesses naturally need to reduce their expenditure; totally fine and expected. What you cannot do, though, is start cutting salaries and bonuses from your employees – it might be inevitable, but doesn’t have to be the first place to begin. Instead, this is what has to come first and foremost; well-paid employees are happy, motivated employees who will do the job required of them. And they will go beyond expectations if they are emotionally connected and feel valued.
It’s likely that your biggest expense is your salary and bonus structure, hence why it might be necessary to reduce that cost. Although it’s a big expense to pay out year-in, year-out, it keeps your employees motivated to keep your other expenses lower and your business turning a profit, it might be required to have the right people doing the right work in your business.
Therefore, think twice before you start cutting their wages and making them feel even more disfranchised with the business. This is only likely to make your business appear like a place that, broadly, people will have no interest in working or establishing a career for themselves, which has its own particular problems.
Why Disengagement Costs More than Salaries
Essentially, if your employees are performing to a level whereby your business runs at a profit, they are doing their job right. If you cut their wages, they will become disengaged from the future of the business. Although you might feel cutting salaries is the only way to ensure a profit, you could consider working with a professional to look at ways to increase your revenue.
Productivity will suffer if less employee head count is responsible for the same volume of work. As we said above; who wants to work for a business that is perceived to be going out of its way to reduce your income? If the employees feel they are already working hard and still get their wages/bonuses slashed, it’s only natural to stop trying so hard. This could also apply to taking away benefits that they normally would have access to or be required to pay for out of their own pocket.
This also creates a dilemma where most people on the payroll will then essentially stop trying with the customer base, too. Sales will drop as people won’t go the extra mile to push those sales and this will force your customers to seek better customer service elsewhere.
The opposite side of this, of course, is to boost the expenses you pay out to your employees. Why? Because, if you pay them more, you can expect even more. If your team has increased the business performance impressively in recent times, then reward them with higher earnings while setting the challenge that they need to make up the short-fall in even greater productivity.
Set up initiatives to help increase revenue to cover those expenses, so your employees have a clear pathway to work towards, while being extra-motivated by a larger sum of money in their back pocket. It’s a win/win situation and tends to go a very long way to making business performance that touch more impressive. If you are in the business that depends on hiring employees, then you should be expecting to pay those employees. You can truly eat your cake and have it too – so to speak.
The Morality of Reduction
A weird thing that has become commonplace is for a company to slash wages and then use those reductions in expenses (and happiness) to boast about a large company profit that year. This is exceptionally artificial, and when people find out that your ‘record year’ came from reducing your employees or by slashing a significant portion of their money, you will suffer the reputational effects of doing so. This may include boycotting, disengaged customers, and overall a toxic environment and culture.
Instead, invest time and money into making your employees feel suitably positive and proud of what they do for a living. Profits come when your employees feel well-remunerated enough to work beyond their standard capacity. If you keep that in mind, you can make a massive difference to the way that your employees work.
Put simply, business performance and profits can be obtained, optimized and improved by treating your employees as a necessity rather than a temporary expense!
This isn’t some nebulous idea or some zen tactic that cannot work, either. Companies such as Mercadona of Spain, the ‘supermarket of Spain’ as well as Costco, according to Forbes, are two prominent examples of companies in low-cost environments that pay their employees well enough to help them soar.
Those companies, as an example, aren’t trying to squeeze more money out of customers, nor are they trying to make employees work for less. It’s a perfect example of creating high quality customer service, good product management and therefore developing the ‘holy trinity’ of committed employees, quality products and happy customers.
So, if you are about to wave the big red pen around your salary budget, think twice about looking to invest in boosting productivity instead of slashing morale for a short-term profit and biting the hand that feeds.
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About the author: Kyle Kalloo is the Chief Financial Officer, Chief Operations Officer, and Executive and Business Coach with Change My Life Coaching and Change My Business Coaching. With 25 plus years of experience in senior management positions, Kyle has established a robust record in strategic positioning and brand management, operations restructuring, feasibility assessments, change management, people engagement, and executive development. Also, he is the recipient of awards for Innovation and Improvement in previous roles. https://www.changemylifecoaching.ca https://www.changemybusinesscoaching.ca