Graduate Capstone Project Presentation

1. THE POINT OF DIMINISHING
RETURNS WHEN DOING
MORE WITH LESS
Reducing Operating Costs by
Cutting Payroll Expenses

2. Capstone Project
Kim Horner
ORL 4902
Leadership and Organizations - Human Capital
March 7, 2012

3. Project Definition
Payroll is often an easy first target for organizations
when cutting operating expenses because:
1. Payroll can comprise over 78% of an organization’s
operating expenses.
2. Other organizational divisions are often wrongly
viewed as having greater tactical impact on
profitability.

4. Project Definition
 The non-strategic cutting of payroll expenses is often
a short-sighted approach--long-term operational
productivity is sacrificed through non-sustainable
and ever-increasing requirements to do more with
less.
 Methods used to cut payroll: layoffs, hiring and
salary freezes or reductions, outsourcing, reducing
customer service levels, deferring discretionary
spending, decreasing training, and diminishing
benefits.

5. THESIS
Companies sacrifice long-term profitability
and productivity when reducing strategic
investment in human capital through payroll
cuts in order to decrease operating expenses.

6. Project Foundations
Profitability -- straight-forward, immediate, numbers-
based indicator.
Productivity -- complex, abstract concepts that will
affect profitability both in the near and long terms.
Payroll cuts will likely positively affect a company’s
short-term profitability while at the same time
doing significant damage to its long-term
productivity and, therefore, its capacity to achieve
future profitability.

7. Project Foundations
 While worker productivity is at the heart of payroll
productivity, it cannot always be measured strictly by
monetary profit but also by the quality of services
provided.
 Focus on improving the quality instead of the
quantity of work can be a strategic tool to actually
lower costs and increase productivity.
 Payroll expenditures must be managed as
investments rather than expenses.

8. Project Foundation
 Project significant to all organizations, regardless of
size, and to specific company functions such as
Human Resources, Technology, and Finance and the
study of those fields.
 Which functional areas of human capital investment
achieves greatest return on investment: training,
bonuses and incentives, benefits, hours worked, pay
and compensation, etc.?

9. Project Foundations
 Of the various payroll expenses including training,
bonuses and incentives, benefits, hours worked, pay
and compensation, etc., TRAINING AND
INCENTIVES produce the most return on
investment.

10. Consequences of Payroll Cuts
 low morale
 eliminating or impairing existing capabilities
 creating an irrecoverable backlog of work
 reduction in customer service levels
 employee burnout and lack of retention
 requirement to recruit and train new hires
 risk-averse “survivors”
 opportunity costs of lost sales
 brand equity costs

11. Project Foundations
 Improving the quality of work requires not cutting
payroll investment, but rather implementing strategy
to achieve greater results from equivalent resources.
 This requires maximizing results from existing
budgets by analyzing the real costs of operations in
relation to their outcomes.
 Workers are more likely to be the source of
innovation and renewal than anything else.

12. Well said…..
“Companies define workers only in terms of how
much they cost and fail to consider the value they
create.”
~Wayne Cascio
“In the end, your long-term productivity comes from
your people.”
~Clinton Longenecker

13. Foundations of Employee Training
 Communication-focused
 Empowers workers
 Creates learning culture
 When workers can perform multiple functions, it
makes them a more productive asset to the
organization and keeps them focused and engaged.

14. Foundations of Manager Training
 Effective leadership is crucial to organizational
success.
 Managers must be competent in building employee
partnerships and encouraging employee
contributions.

15. Managers Must Be Effective At:
 Having the right person in the right job at the right
time
 Coaching performance
 Effective communication
 Resolving conflicts
 Budget development and administration
 Team building
 Managing stress
 Nurturing employee

16. Final Thought on Training
For training to be effective,
IT IS VITAL THAT ORGANIZATIONS INVEST IN
ACCOUNTABILITY FOR TRAINED BEHAVIORS.

17. Incentives
Incentives can be financial or non-financial.
Non-financial incentives can be more effective but
ONLY IF employees are already earning a
competitive salary.

18. Non-Financial Incentive Foundations
 Recognition from superiors and peers
 Feelings of accomplishment
 Job satisfaction
 Opportunity to take on more responsibility

19. Foundations of Financial Incentives
 Directly tying performance to pay through variable
compensation programs.
 Ensure that the most valuable employees are the
most heavily invested in.
 A solid performance management system which
compares individual performance against pre-
determined organizational goals is vital to the
success of such a program.
 Rather than cutting pay/payroll, costs would be
reallocated from base salaries to an incentive award
program.

20. Technology’s Role in Payroll
 Technology has reduced payroll costs by simplifying
and streamlining complex HR administration and
replaced many human tasks.
 On the flipside, technology has increased
performance pressure to do more, faster, and with
less, adding to employee performance pressure.

21. Project Solution
 Payroll cuts consistently do more harm to long-term
organizational productivity and profitability than the
short-term benefits of immediate relief to the fiscal
bottom line offer.
 High-return payroll investments must be
strategically aligned to organizational goals.
 May require modifying or restructuring employee
compensation, incentives, training and development,
and/or employee performance management
programs to better support the goals of achieving
greater productivity from the same payroll resources.

22. Recommendations
 To boost profits, organizations must look to
increasing payroll’s denominator of productivity
output rather than reducing its numerator of cost.
 The two areas of payroll investment which bring the
greatest return are training and incentives.
 Not only must staff be properly trained, the training
must be continuous.
 Both financial and non-financial incentives must be
heavily leveraged.

23. Conclusion
 The only way to attain the highest levels of company
profitability is for leaders to view their workforce as
an asset rather than as an expense.
 Leaders must implement forward-thinking programs
which empower staff to produce high-quality work
and an exceptional customer experience. This
requires focused investment in training and
incentives, as maximizing these aspects of human
capacity provide the greatest return on payroll
investment.

24. HUMANS, WHEN PROPERLY TRAINED
AND MOTIVATED, ARE THE CATALYST
REQUIRED TO SUCCESSFULLY
ACTIVATE ALL OTHER TANGIBLE AND
INTANGIBLE ORGANIZATIONAL
FUNCTIONS TO IMPROVE
OPERATIONAL EFFECTIVENESS.
Organizational capacity is limited by
human capacity. Cutting payroll budgets
is directly contrary to enduring
organizational success.