When there's no choice but retrenchment

		Thu, Jan 22, 2009 The Straits Times (Singapore)
When there's no choice but retrenchment
By Tion Kwa, Senior Writer IN THE current circumstance, the main objective of most companies won't be planning for the economic recovery. Far more pressing is staying in business until the recovery begins. For most, managing their wage bills will be key. And as no one wants higher unemployment, companies are being urged to be sensitive to their employees' situation and to cut wages rather than retrench. From the viewpoint of employees, less money certainly is better than no money. And for employers, won't cutting pay achieve the same end as firing staff? Wage cuts, then, should be the preferred strategy; one in which everyone wins, or at least one where losses are minimised. Certainly, to judge by the yards of stories written, you'd think that is so. Yet the truth is, cutting pay isn't always an option for companies, and retrenching workers may be the only way for some to survive. It comes down to how a company uses manpower, given the nature of its business. No question, there can be a case made for cutting wages. Take, for example, a property developer. If a developer has a building under construction, it can do one of two things: Shut down the building site or continue construction. The former is a last-ditch measure, and happens only when there are no alternatives to the company going under. A still-viable company, on the other hand, can't afford to abandon a project halfway. There are still loans to service even if construction stops. In recession or boom time, a building requires so many man-hours to complete. If those man-hours can be filled at lower costs, then the company might still make a profit once the property is sold, even at reduced prices. So wage cuts here can work. This isn't always the case, however. Take manufacturing. If a company is facing an order book half the size of normal times, it needs only half its manpower. Cutting pay doesn't work as the company must still deal with excess capacity. How do you share a job? Does a machinist hand over his lathe to worker No. 2 halfway through milling a part? It doesn't always work in the service sector, either. If a bank has fewer customers, how does it split the work between staff? Two workers doing the job of one cashier is a Monty Python sketch waiting to be written. Then, there's the problem of what to do when the economy finally rights itself. How does the company reinstate wages that were cut? This will be particularly difficult for publicly listed companies. While shareholders always want to see operational costs reduced, they don't take kindly to a sudden rise in such costs as previously cut wages are reinstated. But if retrenchment is too radical a step, another way to reduce costs is to cut hours. Reducing the hours workers put in cuts the wage bill, but doesn't affect their hourly rates when they can return to full-time work. So it's less messy than wage cuts. It also gives workers time to try to make up their lost wages. Meanwhile, the factory or office isn't overstaffed. The difficulty, however, is that employers will still have expenses related to maintaining staff, like health insurance costs. The bottom line is, whether a company reduces wages or retrenches staff depends on its requirement for manpower. If, like a construction company, it needs the same number of workers to complete a project according to schedule, then cutting wages makes a better argument than cutting workers. But if hourly requirements are reduced, then the adjustment has to be made on the side of manpower numbers. It's a question of what is most appropriate to the business. At the weekly magazine in Hong Kong where I previously worked, the response of management to the accumulated effect on revenue from the Asian financial crisis, the dot.com implosion, 9/11 and then Sars was to retrench. Slowly, we lost staff; we even closed down the library. But the remaining writers and editors and production, sales, circulation and other staff still had to put out a magazine and run the company. While the amount of man-hours needed didn't change, the number of people available shrank. Each staff member had to do more, and as a consequence, quality and morale suffered. In this case, cutting wages and keeping staff numbers constant would have been more appropriate to the company's needs. It would be great if there were a kinder, gentler way to navigate through a downturn. But recessions are brutal and it's fantasy to think there are relatively painless ways out. For some, reduced wages certainly is a possibility, and an option that should be actively pursued. However, it is unfair to the others to give them the illusion that they too can be saved from retrenchment. And it betrays a lack of understanding of how business works to pillory firms that have no choice but to let workers go.