How to Restructure Salaries and Staff in Lean Financial Times
As the economic impacts of the pandemic continue to weigh on associations, budgets have become leaner. Budget shortfalls can be reduced by reassessing compensation and job duties, or, if that fails, downsizing, says an expert.
Back in March, many thought the pandemic would end in a few short months, but as it stretches into month seven, the economic impacts are becoming harsher for some associations. Those who have been able to hold off cutting employees may now be looking at a more dire economic picture. If that’s where you’re at, thinking differently when it comes to compensation and job duties can help the economic picture as well, said an expert at financial advisory firm BDO.
“There are lots of changes in the way we go to work,” said Judy Canavan, a managing director who specializes in compensation at BDO. “Be as creative as possible with regard to holding your team together and utilize people in ways you had not thought of before, with regards to job sharing, or shifting to contract roles.”
A recent BDO survey found that 27 percent of nonprofits have made compensation adjustments in response to the COVID-19 pandemic. Some have reduced hours worked, taking people to 75 percent hours and 75 percent pay. Others have implemented pay reductions.
“Some stagger pay cuts,” Canavan said. “Maybe they don’t do anything at the lower end, but do more at the higher end of salaries. You might have a zero percent cut at the lowest salaries, then 5 percent, then 7 percent, then 10 percent, then 15 percent.”
For those choosing not to cut salaries universally, they may elect a strategy tailored to individual job functions and employees. “This is an opportunity to ask, how can I support the employee’s personal needs, like work-life balance, and keep our organization flexible?” Canavan said. “You may say, ‘We want to keep you. Would you like to be on a contract basis or part-time? We can’t fund this role 100 percent, but if you can do these two roles, we can fund it.’ It really can be positioned as a win-win for an employee and company.”
However, Canavan cautions that employers can’t just convert an employee to a contractor and have them do the same work “or the IRS will come after you.” If an entire job is no longer needed, but certain aspects can be done on a contract basis, carefully review hiring former employees with your legal department.
If your organization must cut staff, make sure that you keep employees who are critical. “You want the folks that are really going to drive the mission forward, both by the nature of the role and their own performance,” Canavan said. “You want to keep your best performers.”
With that in mind, when discussing potential job cuts, it’s important to communicate clearly and in those terms. “Nonprofits are stars when it comes to mission,” Canavan said. “So, centralizing your message around the mission and making sure the organization can stay viable going forward can help staff morale.”
If cuts are necessary, look into the next year and try to determine accurately what cuts need to be made so you don’t have to go in and make more changes later. “Death by a thousand cuts is never good,” Canavan warned.
Once you know how deep the cuts need to be, make a definitive plan before sharing the news. “It’s very risky to say, ‘We’re going to let people go,’ and not be able to tell them who, when, what, and where,” Canavan said. “That sets everyone in a tizzy. Everyone will start looking for a job. In that situation, you will likely lose your best performers. You want to be able to communicate to the people who are staying that ‘you are staying, and we want you.’”
When cuts happen, people often have questions about severance. If your organization does have money for severance, use a combination of past practices and current economic conditions to create severance packages. “Most companies give severance, but a lot of companies don’t have it documented,” Canavan said. “If you have a documented severance plan, that’s your plan. If you don’t have a plan, I would look at what you have done in the past and be consistent with past practices.”
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