Some costs of savings

Recently, it seems that hardly a day goes by without reading or hearing about job cuts. If it's not a reduction that makes the news, then it's a friend, or acquaintance, or fellow employee who has been let go in the name of saving money. And in the majority of cases, the cuts are probably "necessary.
By Richard L. Dunn, Editor June 1, 2001

Recently, it seems that hardly a day goes by without reading or hearing about job cuts. If it’s not a reduction that makes the news, then it’s a friend, or acquaintance, or fellow employee who has been let go in the name of saving money. And in the majority of cases, the cuts are probably “necessary.” Yet one has to wonder whether management might not be trading short-term results for long-term problems.

While the old admonition that “no employer can afford to lose good employees” sounds wise, reality suggests that companies can afford to get rid of good employees. They do it all the time. Unfortunately, there’s really no way to put a price on knowledge, or creativity, or experience. And those are the kinds of values people are talking about when they say they “can’t afford” to lose good employees.

To be sure, no business can operate for too long if it continues to employ people it doesn’t need. Yet history shows that many cutbacks are short-lived, while their adverse effects may continue for years — long after the lost workers have been replaced.

Of course, decisions to lay off workers are never easy, and they’re not made in a vacuum. Yet, I fear the decisions are too often made with a bias to short-term goals and an eye for how much the layoffs will save as opposed to how much they’ll cost.

We’ve all been exposed, I’m sure, to the scenario of good workers being let go only to be rehired or replaced a few months later. The reasons vary from changes in business conditions to realizations that the work those people were doing was pretty important after all. Regardless of the reason, such scenarios can end up being much more expensive in the long run than the quarterly balance sheets reveal.

Consider, for example, the cost of hiring these days. The Saratoga Institute Human Capital Report for 2000 shows that for 991 surveyed companies, the total cost per hire averaged $4588. For exempt employees, the total cost per hire averaged $12,032; for nonexempt, $989. Now, add in the costs for training new hires, which can easily run into the thousands of dollars per employee, and the costs of lost productivity due to inexperience, lack of knowledge, etc., plus the costs of severance packages, and the totals mount up rapidly.

Before another round of cuts comes, you might want to delve into how much they cost, as well as how much they save.