Savings lead to a recession

Personnel costs: preparing for the recession

Ms. Jahn, Ms. Knab-Hägele, in view of the crisis, companies have to think about medium and long-term cost structures, including personnel costs.

Petra Knab-Hägele: Put simply, we are talking about four topics with which companies can counteract this at different speeds: working hours and vacation, remuneration and benefits, workforce and structural costs as well as other larger cost blocks with a personnel reference. Personnel costs in the field of working hours can be reduced very quickly.

Isabel Jahn: For example, through short-time work, the reduction of overtime and remaining vacation, the voluntary waiver of additional vacation days or the temporary reduction of working hours.


What levers are there for remuneration and benefits?

Petra Knab-Hägele: Depending on the structure of the remuneration systems, bonus budgets and variable remuneration can be reduced or salary adjustments suspended at short notice. It would also be conceivable to only grant bonuses for individual successes. Voluntary wage waivers can be observed in companies with a strong solidarity culture. We are increasingly seeing that a waiver by senior management is perceived as a strong signal. An interesting solution in stock corporations can be to transfer solidarity contributions to employee participation - a benefit for all parties.

Isabel Jahn: In the case of benefits and fringe benefits, too - also in consultation with the employee representatives - it is possible to think about reducing benefits before making harder cuts. The range extends from a reduction in company catering offers to adjustments to company cars or other mobility services. Often there is no overview at the push of a button, so a portfolio analysis of the benefits based on a cost-benefit matrix is ​​worthwhile.


Are savings possible with the company pension?

Petra Knab-Hägele: The company pension plays a special role, but costs can also be saved here. Examples are the temporary suspension of deferred compensation or a risk-minimizing revision of the company pension. The measures are not easy and should be clarified with experts and checked legally.


Which items are large cost blocks with a personnel reference?

Isabel Jahn: This includes areas that do not represent direct personnel costs, but generally offer potential for cost-cutting measures. For example, triggered by the COVID-19 pandemic and the sharp rise in home office quotas, some companies are examining whether they can adapt office concepts and reduce office space and rental costs in the long term. Suspending or reducing internal and external events and travel expenses are also an issue.


What should you watch out for in a planned downsizing?

Isabel Jahn: When it comes to fighting a longer-term recession, short-term structural measures such as a hiring freeze or the expiry of fixed-term contracts must be approached with caution, as the employer image can be damaged. Rather, fundamental questions should be asked and preparation for the downturn or more profound changes should take place.

Petra Knab-Hägele: Key questions are based on the long-term consequences of the crisis. How will the business model change, how will the order situation change? Will business areas disappear, for example due to a switch to digital distribution channels? What should the new target operating model look like? If there is a recovery, will all functions still need the same number of members? The answers to these questions reveal whether companies should deal with structural changes. Then the first step is to analyze the structural costs; downsizing would be seen as a last resort.


How do companies approach downsizing?

Isabel Jahn: As a rule, companies go through three phases: the analysis of the downsizing target, the preparation of the downsizing process and the implementation of the measures. In the analysis phase, the organizational structure is checked and a GAP analysis, which makes the need for action transparent, as well as an overarching process planning.

Petra Knab-Hägele: In the preparation phase, the aim is to use different scenarios to compare the savings potential with the restructuring costs in order to define the scope of the downsizing. In this phase, relevant committees are also involved, for example the management, the economic committee and the works council, with which a reconciliation of interests and a social plan may be negotiated. To this end, it must be checked to what extent and in what timeframe the downsizing should take place and how socially acceptable it can be implemented.

Isabel Jahn: As a rule, management and employee representatives communicate the agreements made. Then, depending on the type of implementation, either voluntary reports, for example for termination agreements or early retirement solutions, or discussions with employees as planned by the managers, often accompanied by the HR department and the works council. An upstream training program for managers and HR managers can prepare for this accordingly. Coordination with legal advisors should also be planned. In the event of a major downsizing, external support from HR management or restructuring experts can be useful.


How should employers consider downsizing?

Petra Knab-Hägele: The following applies to all measures: the harder the crisis, the more restrictive the requirements. To prepare for the medium and long-term approach, you should quickly get an overview of the cost blocks and analyze the possible consequences of the crisis. In the end, a coherent overall concept is required that is easy to explain and does not look like actionism. Often the measure is perceived less as inappropriate by employees than the communication.