Don't cut morale when cutting costs

After several years of grim predictions and record-breaking unemployment statistics, financial experts are predicting that things are on the mend. Whether this is the case or not, many business owners have yet to see big improvements in their bottom lines. As a result, strategies to minimize spending are likely to continue.

Some of the areas that have been on the chopping block include employee benefits and perks. Although reducing offerings to employees in lieu of layoffs is generally the lesser of two evils, employees still suffer. Furthermore, a reduction in benefits or other incentives could have quite a negative impact on employee morale.

It has been well documented that employee morale is a vital component of a healthy company. Not only does it promote a happier working environment, but also it leads to improved productivity and a reduction in employee absences. According to Linda Finkle, an executive employment coach and CEO of Incedo Group, employee turnover can be costly to businesses looking to save money. With morale being a major deciding factor behind an employee leaving a company, business owners would be wise to consider employee response to reductions in the workplace before making any decisions.

Limited opportunities for growth, poor or ineffective leadership and feeling undervalued are primary reasons people seek opportunities outside their companies. It is important to keep employee morale in mind when making budget cuts.

According to a 2009 survey by BIGresearch, salaries, bonuses and benefits are being cut dramatically across the board. Roughly 14 percent of employees who responded to the online survey had seen their salary reduced and 19 percent their hours reduced; 27 percent did not receive a raise and about 13 percent had benefits reduced. The average company is cutting up to five employee-oriented areas of employee spending in an effort to stay viable. Matches to 401(k) plans as well as bonuses have all come under scrutiny.

Although these cuts may be a necessity, that doesn't mean they are widely appreciated or accepted by employees. This may cause employees to look elsewhere for jobs or slack off on their roles. There are estimates that it costs 1.5 times an employee's salary to replace him or her with a new employee. This also doesn't factor in values that cannot be measured, such as quality control issues, broken contacts with customers, effects on other employees who see an associate leave and the time spent teaching a new hire the ins and outs.

Keeping employees happy

It is generally in a company's best interest to make employee morale a priority. But what can be done to boost spirits when certain things must be cut? Here are some ways to lessen the blow.

* Keep lines of communication open. Gossip can breed contempt within an organization. If employees are speculating about budget cuts or possible layoffs, their productivity will almost certainly suffer. It is a good idea to keep employees informed of any changes that may affect their personal well-being. Meetings that address financial ups and downs and also clearly illustrate the company's financial strengths and weaknesses can help clear the air. An employee who feels like he or she is a trusted member of the team may be more likely to make concessions until profits have improved.

* Get employee feedback first. When facing budget cuts, take a survey of what employees believe they can do without prior to slashing any benefits. While an employer may think that reducing 401(k) matching is essential, employees may have their own say, such as cessation of holiday parties, travel allotments or removal of company-provided vehicles.

* Boost the workplace environment. Although employees may be losing a portion of benefits, business owners can take steps to make sure that employees feel comfortable and happy at work. Make sure the office is bright, clean, spacious, and comfortable.

* Compensate with other perks. Although it may not be possible to give a raise or cover the same percentage of health insurance, businesses can offer other advantages for sticking with the company through a rough patch. Employees may enjoy a few extra paid vacation days or a more flexible work schedule. These changes may have little impact on the company's bottom line, but they may boost employee morale considerably.

* Reduce workload and improve feedback. Employers may be pushing their workers to produce more in less time to counter layoffs. Overworked employees are generally not happy employees, so a slow down may not be preventable. Recognizing that employees are only human and have limits is an essential trait in a good boss or business owner. Praise those who are doing good jobs as well. Feeling appreciated goes a long way to improving morale.

* Restore benefits when able. It can be easy to take away but not so easy to return benefits once they have been absent. Companies may grow comfortable with the extra income slashed benefits provide, but greed won't play out well in the long run. Promises to restore perks should be honored to illustrate loyalty to good employees.

Although no one likes to see their pay or benefits slashed, such cutbacks have become a necessity for many of today's companies. But there are ways employers can scale back without negatively affecting morale.