By: Claire Stewart

We’re living in tough economic times. Big businesses are retrenching and some firms are even going under. SMEs are also battling, business is slow, sales are down and cash-flow is tight. Companies big and small are searching for ways to cut costs with many slashing jobs to achieve this. And it doesn’t look as though things are going to improve in the near future.

Against this background, your employees will still ask for increases and you should have a strategy to deal with these requests if not financially viable. If a raise is stipulated in the employee’s contract you will, of course, have to follow through on this promise. But in all other circumstances you aren’t legally obligated to offer an annual raise. Naturally, however, you don’t want to have to deal with a disgruntled, unmotivated workforce or have employees leave on masse when their requests are turned down.

So what should you do?

Some experts suggest that perks such as time off and discounts on company products can be offered instead of an increase. In my opinion, however, these aren’t a good idea because there will always be some associated costs, which will put additional strain on resources and cash-flow. Even extra leave will cost your business as productivity levels will drop. By opting to go this route you are also setting a precedent that you may be stuck with going forward.

Communication is the solution here. You need to talk to your staff about the financial status of the organisation and disclose that there aren’t funds available for increases. Consistency is crucial here, so no-one should get a raise, including the management team. Make sure this is clearly communicated and then implemented.

The best way to tackle this conversation is head on. Set aside time on a Friday afternoon to meet with all staff members to explain the situation. You don’t have to go into extensive detail about your financial affairs, but you should position the firm in terms of the economy and specific sector, and explain the impact of the recession on business. Emphasise that you are committed to making it through this recession with the help of your employees.

During this conversation you may want to assure your employees that you plan to assess your financial situation again in three to six months. And if things have improved, you will reconsider giving raises.

Another tactic may be to offer bonuses for good ideas that generate profits or improve productivity. This should motivate them and will hopefully add to your bottom line. Think of introducing an employee profit sharing scheme that directly ties bonuses to the profitability of the business.

Search for solutions

Communicate that you are looking to avoid the traumatic prospect of retrenching staff at all costs. If the firm is in trouble, brainstorm tactics to prevent retrenchments and make sure that all your employees take part in this discussion. Measures could include reducing the number of days worked per week and choosing not to re-employ people who are on short-term contracts. Also look to cut costs in other areas of the business such as reducing paper and electricity wastage.

If you opt to reduce the number of days worked, approach the employees concerned for their input and start by reducing the work week by one day. This should be done with the view to returning to a five-day work-week when the economic climate allows for it. Employees are expected to act in good faith in this regard and should provide information regularly regarding the financial position of the lirrn.

If employees don’t accept the option of reducing the number of working days, explore other ideas put forward by staff or your management team. If none of the suggested solutions are accepted then you will have to proceed with the retrenchment process.

On a positive note, with the right incentives you could actually increase income and productivity because it is in everyone’s interest to see the organisation survive and prosper.