Sam Stubbs: Now is the time for employers to keep faith with workers – Stuff.co.nz

Now the initial wave of panic and uncertainty has passed, many big businesses will be thinking about how to prepare for an uncertain future.

Redundancies are often the first thing considered, and are enacted to cut costs, protect profits and please shareholders.

But as a KiwiSaver manager and shareholder in many of NZ's largest companies, our message is clear: Redundancies should be the last option.

Here are five simplereasons why.

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1. It fuels the recession.

Layoffs are the surest way of exacerbating a recession. The redundant worker loses income, and so do the supermarkets, cinemas, sports clubs, cafes and bars they spent money at. And it provides a bad example for others to justify their redundancies, turning it into an unnecessary downward spiral.

It's usually bad economics. The cost of redundancies is typically 3-6 months of an employees salary. That means it's 3-6 months before a company starts saving money from the redundancy.

DAVID WHITE/STUFF

Sam Stubbs is calling on businesses not to fuel the recession by laying off staff.

Most layoffs occur at the end of recession, not the beginning, so the companies often pay for the redundancy and find themselves re-hiring quite soon thereafter. The finance industry is notorious for this.

Underperforming companies are always restructuring in the good times, and firing their people quickly in the bad times. By contrast, great companies like Honeywell go to the nth degree to keep staff through the economic cycle.

2.It's bad for a companys' future.

The average time for an economic recession is 12-18 months. Given that this crash is caused by a virus, the recession may be savage, but also over faster than feared right now. Who knows. But however it pans out, in tough times companies often can't see the recovery just round the corner. And if they fire staff, when the recovery comes (and it will) they will be understaffed, and spend time and money rebuilding teams they fired in a panic.

3. It's bad for mental health.

There is nothing as demoralising, and destructive, as laying off an employee in a bad job market. Every worker typically has others dependant on their income. It's a blow to self esteem, and down right terrifying for some.

If companies believe they have any social license, it's first and foremost owed to the employees who depend on them. A company's culture is defined by how it treats its employees, especially in the bad times.

4. The Government is helping, big time.

Subsidies and loan support for all companies in trouble is a clear signal that the Government wants businesses to retain jobs, and they'll spend billions making that happen.

New Zealand Parliament

Finance Minister Grant Robertson unveils $12.1b package to help protect the economy against the coronavirus fallout.

For Government that's a sensible strategy, they may as well pay subsidies for salaries rather than in the form of benefits, and there is a simple dignity in someone keeping their job. It's good for shareholders too, because being fully staffed for the recovery means most businesses will make profits again sooner, and be paying taxes too.

5. Great and enduring companies are ultimately a combination of three things- an idea,money and people.

Great ideas are everywhere, you'll find most of them on the web. And money for good ideas is increasingly available. KiwiSaver managers alone will invest $70 billion in New Zealand in the next ten years. But great people are always hard to find, and nothing signals 'employees don't really matter around here' more than team mates losing their jobs early on.

As a shareholder in many of New Zealand's biggest companies, our perspective is very clear. Great companies value their employees first and foremost. From that will flow motivated teams delivering very satisfied customers and enduring profits. But let great people go, and what makes your company great goes too. As Richard Branson says, employees come first.

And there's no such thing as a company with demotivated staff delivering sustainable long term profits. That ended with slavery.

My business hero, Stephen Tindall, once said that a great person with an average idea is far more likely to succeed than an average person with a great idea. So keeping quality people matters most.

So how does a company adapt for recession without cutting jobs? History has shown some winning ways.

First, the CEO's and directors need to take a meaningful and public pay cut.

That's a strong signal about priorities, and will help save some jobs until better times.

CEO's and directors are no more entitled to their salary and job security than anyone else.

As leaders, they should take any pain first. Is it any wonder that Rod Duke runs Briscoes so successfully? He just took a 100 per centpay cut until things improve. Bravo.

SUPPLIED

Rod Duke, the head of Briscoes Group, has taken a 100 per cent pay cut until the coronavirus crisis is over.

By contrast, some CEO's have taken no pay cut, or have agreed to take one only as large as everyone else. That is not great leadership, because great leaders eat last.

Next, discretionary spending needs to be pared back. There are always ways to save money without cutting jobs. It's different for each business, but each one should know how.

Talk to your accountants and get advice. If a CEO hasn't done this before, many others have.

Next is tough conversations with creditors.

Banks have a big role to play here.

They make over $5 billion a year from Kiwis, so have a social license to do the right thing in tough times.

The Reserve Bank has just relaxed their capital requirements so they can be more lenient with lending, and the Government is underwriting 80 per centof the risk of many new loans. The banks have effectively had their success through this crisis underwritten by the Reserve Bank and Government. Remind them of that when re-negotiating your loans.

And if all that doesn't work, employees should be involved in planning how everyone can take some pain to save jobs. It might be unpaid leave for all, a four day week, or everyone taking a small salary or wage cut.

Any wage cuts should hurt more at the top than at the bottom, and there will be some on minimum wage for which any wage cut might be too big a deal. But where there's a will, there's usually a way.

Teams that survive the tough times intact will thrive when things improve. And remember, the economy has improved after every recession. Every single time.

As a KiwiSaver manager, we have a very clear message to the CEO's and directors of New Zealand's biggest companies, many of which we are invested in.

Right now it's better to have lower profits, or no profits, in order to keep your team employed. Doing so dampens the recession, so we all recover faster. And it's the right thing to do for the long term. Short term profits simply don't matter right now, keeping your team intact does.

We are stronger together. Kia Kaha.

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Sam Stubbs: Now is the time for employers to keep faith with workers - Stuff.co.nz