Under the pressure of expensive energy and an uncertain future, companies in the Czech Republic are starting to lay off workers. By the end of the year, more than a fifth of companies are considering this crisis solution, according to a survey by ManpowerGroup. At the same time, these are mainly large companies. However, experts point out that distributing alerts should only be a last resort. According to them, it is more effective to reduce salaries, and this is also sympathetic to the management.
When tough economic times come and a crisis arrives, many bosses resort to a tough but effective method to tame the budget: layoffs. According to the ManpowerGroup survey, 22% of companies, or more than a fifth, intend to lay off in this way by the end of the year. In terms of outlook, large companies with over 250 employees have mostly deteriorated. According to the labor authorities, at the end of August, 13 employers had already denounced their intention to carry out mass layoffs.
According to economists, there could also be a significant increase in unemployment this year due to the energy crisis. “This year could be a turning point when, after about eight years, the shortage of the labor market and the resulting inflationary pressures will disappear,” predicts Deloitte economist Václav Franče.
At the same time, according to experts, layoffs should be the last step in saving money in the current crisis.
Crises usually last 12 to 18 months, according to Jozef Papp of the headhunting firm Stanton Chase, which deals with the search for high-level employees. So firing people and paying them three, five or more salaries means that the downsizing effect will only begin to manifest itself in a few months. “Furthermore, the additional costs await the company when it wants to hire and train new employees. If the crisis lasts the usual period of time, the total financial benefit could be zero,” Papp warns.
We will miss people, the pandemic showed
According to him, layoffs can make sense when the reason is the futility of a certain position. For example, when a company fires part of its cashiers because it has installed self-service checkouts. Or if he has ten accountants who do more or less similar jobs.
“However, if he is considering firing a sales rep or an experienced manager, he must take into account that some of his share capital, meaning the contacts and relationships he has built, will leave with him too,” Papp warns.
Irena Vrbová, founder of the Porto consultancy firm, agrees with this. “Leaders need to think carefully about whether the situation is really that bad and resigning is inevitable. Is it really necessary to fire a capable person in whose development they have already invested a lot? Do they really want to leave a qualified employee to compete?” thinks Vrbova.
For comparison, remember the job market during the coronavirus pandemic. “We have seen layoffs, for example, in air transport or gastronomy, and many of these operations are still not able to function fully because there are still no employees. They have left for another field and are no longer interested in returning”, the consultant explains.
Management must also be supportive
According to experts, there are other alternatives to solving crises for company leaders besides layoffs. For example, they can train and improve weaker employees to make them more valuable to the company. As part of the survey, overtime work can also be eliminated or the reduced work week or the frozen or even reduced wages across the board.
Jiří Jemelka of the consultancy JPF Czech also agrees with the freezing or temporary reduction of wages, but, as he points out, it is difficult to explain this to employees.
Companies in regions that don’t offer too many alternatives are better positioned in this regard. “It is also a difficult step for entrepreneurs, who know they risk a lot and are not indifferent to the fate of the workers. But the same risk would be if they did nothing and the company closed. Massive layoffs would put pressure on the social system, they would decrease the standard of living and wages in the region would react with a decline, “explains Jemelka.
According to him, some discomfort in the form of a lower salary may be a better option for employees than looking in vain for another job in the market.
Experienced managers try to explain these steps to people, says Jemelka. According to him, if there is already a reduction or freeze in the amount of wages, it should ideally apply to everyone, including management. “When we want solidarity from others, because the principles of the market run into limits, we must be in solidarity ourselves”, warns the expert.
At the same time, stagnant wages need to be offset with at least a good corporate culture. “If I still can’t pay an employee adequately enough, I have to keep him as a treasure. The mission of the bosses is moving more into the area of non-financial motivation and ensuring the best possible working conditions,” says Jemelka.
Instead of a salary, he would offer skilled workers some company stock, an employee loan, or some extra-standard benefit.
Papp of headhunters company Stanton Chase also suggests a counter-current way: recruiting in times of crisis. “While you are considering the necessary layoffs, try to think otherwise: you can take advantage of an economic environment prone to layoffs. Economic crises and recessions are frightening, but they can bring benefits to the most daring strategists when they hire great professionals who have been hastily downloaded from the competition “, Papp offers a different point of view.
Up to a third of colleagues feel guilty
The expert also draws attention to the fundamental problem caused by layoffs, namely the syndrome of guilt for the survival of employees who remain in the company. “Frequent manifestations are stress, anxiety or simply a sense of guilt for not being fired. Redundancy is a traumatic experience not only for those who leave, but also for the ‘survivors’,” explains Papp.
According to him, the initial pain of losing co-workers quickly turns into fear of their job, followed by reduced motivation, a worse work ethic, and less loyalty to the company.
“Survivor guilt syndrome affects a non-negligible portion of employees. According to psychological research, up to one third of survivors suffer from it. This can also have health consequences, which can even turn into long-term problems, for example. eg. greater morbidity or early retirement “, the expert believes.
Letting go is a difficult choice
But as Jiří Halbrštát, ManpowerGroup’s head of recruitment and marketing says, arguments for not firing are only one side of the equation. The second is full of unknowns: the customer has postponed the order by a month, how long will he postpone it? The sales team has several potential customers in the funnel, how many will they sign? Current energy prices have put us in the red when the price will fall again – and will it fall altogether?
“If the owner of a midsize company finds the equation in such a way that instead of 10 percent profitability, he endures a year of zero black in order not to lose costly trained human capital, then there is nothing to solve. . However, if the head of a global company is standing on the stock exchange against pension fund investors who want a clear plan to keep profitability at a minimum, that’s a completely different matter, “says the HR specialist, noting that they are above all big companies thinking about layoffs now.
According to him, the difficult thing is that no one has a crystal ball and today it is impossible to say whether the economic situation will really improve in six months, as has happened with other crises in the past, or on the contrary, it will become even more difficult to dramatize.
“In practice we have often seen difficult decisions postponed for so long that in the end the cut had to be much deeper,” concludes Halbrštát.