How to effectively control your labor costs in trying times

1. This guide is intended to assistbusiness owners and HRprofessionals reopening in
a cost-effective manner during the Covid-19 pandemic. Our currentbusiness
climate has made many new demands on your business, and in some cases,
merely staying afloat has become a challenge. Labor-related issues areof primary
concern for most, and here are some questions you may be asking:
 When the PPP and EIDL runs out, am I prepared to bring my staff back in a
practical way?
 Do I trade in my most expensive staff for eager new talent?
 What about permanent layoffs and/or salary reductions?
I am here to answer your questions and to help you navigate these new
challenges. Having been personally in charge of labor cost initiatives at IBMand
Ricoh Production Print Solutions, I havesince helped many other companies get
ahead using the fundamentals of controlling labor costs.
Before you start the analysis, you must state the problem, state your goal, and
state your objectives. You need to establish executive and owner champions
throughoutyour HR team, and consider smartprojectplanning throughout the
initiative. A practical guide for this process is provided below so that you can see a
clear outline of the various steps involved.
My experienced team of HR professionals is ready to collaborate with you to
tackle tough obstacles; we will not only find real solutions to your challenges
during this unprecedented time, but we will help you to effectively implement
them as well. I look forward to hearing fromyou and to working together.
Stay well and stay strong!
Art Amler

2. Controlling Labor Costs: A Practical Guide
I. STATE THE PROBLEM
1. Gather the issues using feedback from the top and others as well as business results
2. Gain consensus
3. Compose a clear, concise statement that best explains the issue at hand
Examples:
 “An HR solution is needed to help close the fall plan gap”
 “We need to find alternatives to layoffs”
 “Labor pricing for proposals is not competitive”
 “Long-term growth is impeded by costs, especially labor”
 We need to stabilize the company during this crisis
II. STATE THE GOAL
 Reduce by $5 million labor costs without layoffs
 Bring into market Compensation and Benefits programs
 Health Care Costs
 Compensation structure- pay levels and Bands
 Historic premiums and perks, e.g., off-shift pay
 Reduce EE’s on commission plans
 Change Training Format
 Streamline Executive and middle management positions
 Become competitive on deals
 Increase earnings per share by x%
III. ESTABLISH THE OBJECTIVES
 Develop the optimum ratio of revenue to labor costs
 Develop the formula: understanding the labor cost unit per capita
 Establish the savings figure required to close the budget gap from the HR programs
 Establish effective tools and processes
 Training HR and then managers on required actions

3. IV. DEVELOP THE EXECUTION PLAN
 Who are the stakeholders and champions that build the senior team?
 What are the indicated actions top down and bottoms up?
 List all the actions, sequenced by dependent and prerequisites
 Segment the areas of focus:
 Health Care
 Banding
 # of Executives
 # of Employees on Commission Plans
 Benchmark to ensure programs/plans/processes are market competitive
V. DISCOVERY OF THE ELEMENTS
 Where are the cost centers?
 Looking across the HR spectrum
 Compensation & Benefits
 Health Care: Subsidy rate? Deductibles? Self-funding?
 Overbanding/Levels
 Who is on Sales Commissions?
 401(k) Match?
 Premium Payments- Shift Pay, On-Call Pay
 Salary Reductions by 10% (avoiding “constructive discharge”)
 Complementary workforce
 Contractors: Too Many?
 Supplementals?

4. VI. SENIOR LEADERSHIP BUY-IN
 Decide who on the leadership team will be the champions
 CEO
 CFO
 CHRO
 Functional Leaders
 Early Review of game plan
 Set up ongoing reviews and dashboard

5. VII. TEAM BUILDING
 Who should be on the team?
 Select Key Managers/Functional Managers
 Finance Representatives
 HR Representatives
 Other?
 Decide leadership of team
 Timing of reviews/cadence

6. IX. SUMMARY AND HELPFUL HINTS
 Overcome skepticism; goals can be achieved if realistic
 Follow the money; examine budgets
 Understand market benchmarks
 Opportunities to reduce come with this understanding
 Makes communications to employees more reasonable
 Never oversell to management and employees
 Never say cuts will preserve jobs
 May come back to haunt if cuts alone do not resolve business challenges
 Do not even say cuts will lessen need and amounts of job cuts
 Perform senior leadership monthly reviews for critical success
 Avoid salary reductions approaching 20%, as can lead to “intolerable conditions” leading
to “constructive discharge,” which legally is equivalent to termination