From Downsizing To Appraisals: 2021 – A Path To Recovery

Just as we thought we were past the trying & testing times of the novel coronavirus, the second wave of the global pandemic was right before our eyes. But, to our relief, 2020 has done but one thing right, and that is, it taught us how to stay afloat. Talking about how organisations are tackling it, last year came certainly as a shock but this year, the corporate world is geared up with stronger planning and a more effective approach, thereby trying to be viable as a business. And above all, taking care of employee experience and happiness is on the cards. Meaning,  besides the mental care initiatives, what was due last year – salary increments/appraisals and promotions are finally happening! As a result technological adaptation is at its all time high, making HRMS software, payroll software and other such solutions an inevitable part of every organisation. 

Apparently, a recent study has confirmed that 59% of companies in India are intending to give salary increments to their employees in 2021, with some already putting it behind.

In this blog, we will walk you through the swift move from employee downsizing to appraisals and promotions in organisations post the sudden outbreak of COVID-19.

The following sections of the blog will cover:

• Downsizing: A thing of the past
• Adverse impact of downsizing on businesses
• Other alternatives chosen by companies
• The comeback of salary increments/appraisals and promotions
• The growing role of HR
• The need of an adaptable payroll software

The belief of firms all over the world that there are only two ways to make money in business – cutting costs or increasing revenues, leads to the expectation of reaping financial benefits from downsizing. This is why, in 2020, the first impulsive reaction of most of the companies was to downsize their workforce as a tactical action to overcome the crisis. But does this practice achieve the desired results?

Downsizing: A thing of the past

Fact check:

“Studies have tracked the performance of downsizing firms versus non-downsizing firms for as long as nine years after a downsizing event. The findings: As a group, the downsizers never outperform the non-downsizers.” – SHRM

There are numerous cases where downsizing has been merely a cloning response as companies try to copy their contemporaries. Most of the time, if a company wants to remain competitive, this seems to be the only option as rivals reduce wages to cut business costs. In 2020, a similar common tendency was also observed to give undue attention to particularly newsworthy examples of downsizing. However, companies that have attained dramatic benefits from downsizing and redesigning business processes, such as General Electric and Procter & Gamble, become samples for how the process works, without paying attention to thousands of companies that cut payrolls but continued to struggle. Point being, no one went deep into analysing what the exception did right, but just continued to blindly follow the same path and ultimately failed.

Adverse impact of employment downsizing on businesses

Did you know?

“More than 3 million Americans lost their jobs in 2008. However, 81% of the top 100 companies in Fortune’s 2009 list of “Best Employers to Work For” had no layoffs that year.

As opposed to increased benefits, a smaller payroll or downsizing often comes with the following downsides:

• Loss of business as a consequence of lesser salespeople
• Numerous direct and indirect costs incurred
• No new products as there are fewer R&D staff members
• Reduced productivity when high performers leave as employee morale decreases

Such obstructive results of downsizing, can have a huge negative impact on the finances of a company. Besides the missed opportunities, layoffs may also result in:

• A substantial decline in employee morale and commitment
• A significant increase in employee stress and burnout
• A visible underperformance of employees and the business in the market

Other alternatives chosen by companies 

“One poll conducted by a major cable news organization asked whether employees would rather take a pay reduction of 10% or see their organization reduce its labour force by 10%. More than 80% of those who responded chose the pay cut.”

Downsizing must not be any business’s first response but the last resort. Mentioned below are 4 main options that organisations have been observed to have adopted as an alternative to downsizing/layoffs:

Pay cuts

Reducing labour costs while preserving jobs is the first option that comes to the minds of those who do not wish to go down the risky path of layoffs. It is not only a way to sustain the business finances but also relieve professionals from the fear of suddenly losing their jobs.

Pay cuts with incentives

However, pay cuts may impose an emotional toll on the employee morale and have great chances of degrading productivity and performance. The best way to make up for this temporary step is to reward overachievers with incentives even in these tough times. 

Salary adjustments

This is an alternative to completely laying off an employee or announcing a salary cut out of the blue. In this way, employers can make adjustments in a particular component of the employee’s salary such as deduction for WFH or reduced working hours, elimination of conveyance and other allowances, etc.

Salary deferments

Businesses that have strong roots and higher chances of recovering from the financial crisis in near future adopt salary deferment options as opposed to salary cuts. Here,  employees are paid back or reimbursed the deducted amount in the form of arrears once the business gets back on track.

2021: The Comeback of Salary Increments/Appraisals and Promotions

Apparently, a recent study has confirmed that 59% of companies in India are intending to give salary increments to their employees in 2021, with some already putting it behind.

Some leading companies even report that apart from giving a financial hike to the existing employees, openings for new recruitments and replacement hiring are also in near vision. It simply projects that corporate organisations are bouncing back with a strong force and plan on building and strengthening their workforce as opposed to sitting back and counting days for the virus to disappear. Managing a workplace that has suffered and employees who have survived downsizing or salary cuts is quite challenging. On top of that, hiring new employees and taking important payroll decisions is also an added task. 

The growing role of HR

Doesn’t all this look like added work on the HR’s plate? So, this is where the Human Resource Department comes into the picture and becomes the protagonist. HRs have taken the front seats, fastened their belts and are ensuring smooth functioning of processes throughout the organization. And to stay on the top, well-equipping and empowering HR professionals is, undeniably, a must! 

The growing role of HR accounts to the following emerging needs:

The need of an adaptable payroll software

Now that it is understandable how these testing times have forced HR professionals to be on their toes all the time, the next thing is to understand how payroll software plays a crucial role here. To get to the point, let us first understand where an organisation lags when it comes to effective payroll management.

Challenges of a traditional payroll software

• Inability to distinguish employees as per workforce type, department, or OU level
• Failure to synchronize details of time & attendance, performance reviews, and integrate financial aspects while preparing payroll
• Difficulty in integrating pay increment data with final payroll information
• Inefficiency in making accurate calculations, deductions, and processing salaries
• Erroneous payroll-related data creating payout issues on every month-end 
• Long due incorporation of appraisal details into the payroll system for calculations
• Non-compliance of statutory deductions like EPF, ESI, PT, LWF, and others as per the latest amendments in the law
• Incomplete pay information and delayed or no resolution to payroll-related queries

Since most of the additional and elevated responsibilities that HRs execute in such challenging times revolve around overall business finance management, it eventually comes down to effective payroll management too. For this purpose, if you are still lagging behind in terms of incorporating the latest payroll software with advanced technology, now is the time! Let’s take a look at why the need of having a top notch payroll management system at your disposal is the need of the hour, and how it runs processes like clockwork during such crucial times. 

Conclusion

We have come a long way in such a short time by switching from laying off employees to preparing them for the toughest hour and rewarding them in the time of need. In case downsizing was your last resort, we hope you used strategic tactics to implement the same, and treated your parting employees humanely and with dignity. But if you chose to stick with your employees through thick & thin, the need of the hour is to be proactive. The reactions and needs of the layoff survivors, the training of the new joiners, and performance appraisals of the hardworking ones must be kept in mind. Last but not least, HRs must adapt to technological advancement such as HR and payroll software and make the best out of it to fight these challenging times.