Perks kicked to the curb

by HCA05 Mar 2009

Recent reports indicate that some companies have resorted to cutting office perks in an effort to stay afloat amid financial turmoil; but while the cuts may help the bottom line, the effect on employee morale could be costly.

It's the end of an era when free coffee and tea tins begin to disappear from work kitchens and employees are asked to keep client schmoozing sessions to one small espresso each. But for many companies now battling the economic downturn, perks are a luxury that can no longer be afforded.

"With revenues either declining or not rising as quickly as budgeted, organisations are looking at their cost base to ensure it is sustainable. In many cases perks are seen as a highly visible way to reduce costs, but in reality the amounts spent on them in many firms is quite low," said Jairus Ashworth of Hewitt. 

Indeed, while this may appear to be an effective, easy way to cut costs, Ashworth noted that the savings made by slashing perks could backfire and impact employee morale, damaging the company's finances much worse than a few free coffees.

"The impact that the cutbacks may have on staff morale - in an already tricky time -may be more counterproductive than the actual savings achieved. The converse may also be true though; if cutting back perks means saving a few people's jobs then it may be quite well received. The key is balancing the need to structure costs to match affordability," he said.

Companies should also not be fooled into thinking that 'perks' are a minor benefit that won't be missed by employees. While these extras may seem small, the impact of a complete cut is likely to be large.

"Reduction in benefits is certainly an area that can get an emotional reaction from employees. The working environment is a really important piece of the total rewards offering and one which has been an area of great focus for companies over the past decade," said Ashworth.

"However, punitive benefit cutbacks - those that won't actually save money, but are being taken away for symbolic reasons - will tend to be received more poorly than those which are genuinely about making essential cost reductions."

If the cutbacks are indeed needed and must be put into place, Ashworth suggests that the best plan of action is one with plenty of communication from employer to employees, where the (reasonable) rationale is explained and the decision is put into context - explaining why the strategy is sensible and in everyone's best interests.

If the perk cutback seems like too much of a risk or stringent strategy to apply, there are also other effective cost minimising methods available - which may not cause as much of an uproar.
"Other strategies include: reduction or elimination of bonus pools; executive salary reductions; programs to encourage the taking of outstanding leave," said Ashworth.

"Progressive companies will look to optimise their total rewards; looking at how to maximise employee satisfaction with their rewards while spending less. For every cost cutting strategy the firm employs, double the amount of time should be spent on revenue producing strategies. It's difficult to sell your way out of a recession, it's even more difficult to cut your way out of one."


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