Random Cuts Can Endanger Performances

Jane Paradiso, practice leader for workforce planning at Watson WyattWorldwide, offers this cautionary message: “Before you begin cutting benefits,take a step back. HR executives tend to be reactive and often don’t have themetrics needed to look strategically at what is best for the organization.”

    Cutting benefits without clear objectives and consideration of the impact onemployees can undermine performance. Any changes in benefit plans should be partof workforce planning, which entails analyzing the demographics for employeesand their dependents, identifying the most important positions, and calculatingturnover and replacement costs. “With this information in hand, you can createan ROI model to determine which cuts make sense and what savings can beanticipated,” she says. “This is an unemotional analysis that looks at costsand the level of risk involved.”

    Paradiso advises executives to look at the problem holistically andscientifically, and aim for a package of solutions–a combination of cuttingsome benefits and adding others–that is attuned to the needs of theorganization, particularly in terms of retaining key people. “Otherwise, you’llbe left with a company of lower performers, and any cost savings derived frombenefit cuts will be lost,” she says.

    Effectively communicating the changes to employees is absolutely critical.”Make it honest, and make sure employees understand why the cuts arenecessary.” She advises against asking employees for input on possible benefitcuts. “This approach frequently backfires,” Paradiso says. If you find thatyou cannot act on their recommendations, which is often the case, then you arein difficult situation. It’s best for executives to make the decisions aboutcuts on the basis of business needs and objectives. This is their job and whatthey get paid for.”

Workforce, March 2003, p. 42 — Subscribe Now!