Addressing issue of salary expenses in the COVID-19 situation


As we mentioned to you in my previous mail, we are looking into ways to deal with the economic impact of the COVID-19 lock-down. The first question we are addressing is:

How to deal with salary expenses? Should we lay off employees until the situation becomes clearer and commercial activity resumes?

We are researching how businesses (big and small) are addressing this issue across the world. We are also looking at how businesses dealt with such issue in the past. After all, this is not the first time that any business has faced this situation. Businesses have coped with the 1918 Spanish flu, world wars, industry destructions, natural calamities, etc. There are businesses that are more than 100 years old (Shinese businesses of Japan) and have seen and survived all kinds of situations, including those like this one.

The short answer is: Do not lay off your employees unless absolutely desperate.

Basically, it is the last action you take if you are forced to. These are the times which give you an opportunity to build employee loyalty. They will then stay with you through thick and thin. They will be the support that you will need once the activity resumes. This situation will get over sooner or later. What will remain with you is your employees to resume the business later.

Another practical reason for not laying off employees at this time: currently, a lot of daily wage workers, labor and unskilled people have gone back to their villages amid the lock down. Experts feel that when the lock down ends, not all of them will come back to cities. A big percentage of people who were considering returning to their villages permanently pre-corona, may decide not to come back at all. Or they could simply stay back for longer. This will lead to acute blue-collar staff shortage once the lockdown is lifted. At that time, it will be difficult for you to arrange for employees. And if you don’t stand by your current employees, they won’t be loyal towards you anyways. Therefore, helping them right now might help you in a big way later.

However, I know it is easier said than done. And for some businesses, the situation could get desperate. In such a case, you know what’s best. But if you can, keep your employees.

Of course, you can try to negotiate salary arrangements with your employees. Here are some ideas:

1. Categorize your employees according to their financial needs: You would have employees at all levels. Some would be affluent enough to take significant salary cuts for some time. Some could afford lower salary cut and some couldn’t. Depending on your situation, you may talk to them about the required cuts at appropriate time. Its better than laying off employees.

2. Giving incentives in return for accepting salary cuts: If you have highly skilled people in your employment, then you can offer them incentives later so that they accept significant salary cuts now. Incentives like:

a. Sharing a percentage of profits over and above the salary once the business revenues / profits reach pre-Corona stage.

b. Arranging to pay lumpsum amount equivalent (plus more) to total salary cut when business reaches pre-corona stage. This will reduce uncertainty for you and lower your fixed salary expenses now.

3. Communicate with employees: It will reduce panic and fear in your employees and mentally prepare them for what to expect:

a. Communicate that there could be salary cuts if this situation persists. If you will keep communicating, they will understand your situation and be financially prepared to deal with it.

b. Tell them to be very cautious in their spending even after the lock down is lifted. They should restrict to spending only on essentials. Unless we have vaccines and medicines for Corona, we could be hit by second and third waves of the virus (as happened earlier in the case of the Spanish flu in 1918). Every penny saved now will be helpful at that time. It will also give you space for salary cuts, etc later, in case it is required.

4. Trainings: The handling of 1997 Asian crisis by automobile manufacturer Toyota, where it incurred losses for four straight years, is exemplary here. When all other companies in Japan resorted to cutting costs by laying off employees, Toyota’s leadership decided to cut all costs except laying off employees. They instead used these four years to train and improve skills of their employees in their work areas. This resulted in Toyota coming out of the crisis much stronger than before and with the highest employee loyalty. They were able to grow much faster and efficiently once the crisis was over.

Similarly, while your employees are at home, you can ask them to undertake digital trainings, which can be helpful in your business. For example:

a. Language skills: Employees can focus on their English speaking and writing. Or if you have an import/export market, then you may want your employees to pick up basics of the relevant foreign language.

b. Digital marketing: They could explore ways to increase the online presence of your business and can take online trainings on digital marketing and social media management.

c. Process development: The respective division heads of your business can work on establishing and improving the existing processes in their divisions. Process development always takes a back seat when the business is actively running. This is a good time to focus on that.

d. You can also identify useful online videos and courses for your employees that would be relevant to your business and ask them to undertake them.

It would be great to hear how you are handling this situation? Are there specific courses that you have asked them to do? For example, have you identified online training courses useful to factory workers, sales representatives, floor staff, accounts staff, etc. Or have you entered specific salary cut arrangements with incentives later? We would like to hear about them and share them with others.

Please keep sharing your feedback with us.

Besides, we are glad to receive an overwhelming response to the last email. Business owners have asked us a variety of questions including identifying opportunities in this situation. Like – how will industry change, is it a good time to expand for efficient businesses, fresh business opportunities, procedural changes required, getting loan without collateral, reducing rent expenses, etc. We will deal with all these questions and more that we get from you in our future writeups.