King Company: Labor Cost Reduction

Introduction

The concept of labor costs is a pertinent issue that rocks the HR department every now and then. Retaining talent that would suffice to handle the operations of the company in an optimum fashion in the face of downsizing is the extra assignment that HR practitioners face. To do this, an up-to-date job analysis is critical in determining how to reduce labor costs. This paper will focus on these two concepts and end by looking at the short-term and long-term implications of downsizing. On this same line, possible EEO issues that might rock King Company in its bid to downsize.

Reducing Labor Costs

            King Company is in for a tough assignment that it has not undertaken since it started operations. To begin with, the management of King should come to terms with the fact that the company’s bid to cut costs is tantamount to adding pressure on one side. Sufficient attention should be paid to unexpected consequences that might arise and destabilize the company. Diligence in the process of reducing labor costs is not an option, it is mandatory to ensure that the company does not make irreversible damage to its reputation and ability to meet its objectives. To start the process, sufficient communication should be emphasized to the employees to ensure that rumors and unnecessary tension are avoided. The employees need to be kept in the loop as to why the process is being undertaken, and what the company is pursuing in the process. Their ideas and views should be encouraged and taken into consideration.

Redundancy is something else that can be critical in labor costs reduction efforts. Redundancy causes duplication of efforts, something that reduces the effectiveness of the company’s departments. To put this in perspective, consider the email to Karla Dugas from CAD Design. In the email, we learn that the email ought to have been directed to the Compensations and Benefits Officer and the issue would have been settled there and then, but instead, it was sent to the wrong person and thus ended up sitting in the in-tray. Redundancy can also be reduced by ensuring that automation and outsourcing of some tasks are done. Such tasks need not be critical. Employees should be armed and trained to use of the most recent tools, which in turn would simplify work alongside speeding the work and reducing errors. This enhances effectiveness and efficiency.

            To ensure that there is a sustained increase in return on investment as it pertains to investment in labor, different tactics to encourage productivity should be engaged (Aichlmayr, 2008). For instance, the pay structure can be revised to capture productivity. Rather than laying off employees, the company can reduce their fixed wages and advice the employees that their income will be based on output. This will mean that there will be enhanced motivation to go over and above what they always do. In this case, costs will be directly related to revenue. Another suggestion would involve converting pension plans into equity. This will ensure that the employees will have their pension catered for in a sustainable manner. Jake Call proposed the assertion and with the approval of Madison, Smith and the compensation manager, wanted to change the bonus plan in a bid to control costs.

Reducing labor costs does not necessarily mean that people will be laid down. The company can employ other strategies to ensure that they get labor costs down. Such methods include reducing the costs of training. For instance, if the company sends employees to distant institutions for training, such plans can be halted and the trainers in such institutions can be hired to do an in-the-office training. Other techniques such as peer training can be adopted to ensure that employees train each other instead of engaging expensive consultants who can train a few who would in turn train others. In future, instead of employing people on a permanent basis, they can be employed on contract basis, which ensures that they are only engaged on a need basis, otherwise they are released to ease the pressure on fixed costs.

 The talent acquisition process, which involves the recruitment process, selection, and training of the newly acquired talent, is an expensive affair that should be looked into. To avoid the activation of this expensive process, King Company should endeavor to retain talent, since it has a stable workforce, and instead focus on ensuring that cost cutting is well on course. To ensure that the company is able to retain talent, it should ensure that its salaries structures are attractive and matches the current market trends to ensure that employees do not look for opportunities outside the company. Besides talent acquisition process, King Company should consider severance pay, that should be paid to those employees it will cut out, which according to Muñoz-Bullón and Sánchez-Bueno (2014) offers a big discouragement to firms intending to downsize.

Up-to-Date Job Analysis Information and its Role in Labor Cost Reduction

            Job analysis information provides the duties, requirements, context, and contents of a job considering the importance of the said duties. The analysis provides a platform where judgments are made with regards to information collected on a job. Job analysis is conducted on a job position and not on the person holding the job. The incumbents, by virtue of being holders of such jobs, are an important source of information necessary to provide the description and specifications of the job. A job analysis is important in providing the job relatedness of human resource procedures such as selection, training, appraisal, and compensation. 

 A job analysis in the case of King Company provides important information that can be used in cost reduction efforts. The job analysis activity, when conducted on the premise of training needs, can specify how training can be done effectively in terms of costs to arrive at the same intended outcomes. It is also using the same activity that compensation is determined. Job analysis explains in detail the skills levels required for the job, compensable factors, and the working environment in terms of hazards, mental, and physical efforts. The responsibilities that come with a job are also factors considered in determining compensation, not forgetting the desired education levels. Job analysis aids in the identification of necessary equipment that might be needed in the execution of such work, which ensures only the necessary equipment are acquired to avoid redundancy.

Long-Term and Short-Term Implications of Downsizing

            Downsizing causes nervousness among employees, with varied effects both in the short-run and in the long run. In the short run, the reputation of the company is tainted and this might affect how well the company attracts talent the next time it needs it. The management might be reading from a different script where, according to Jung (2014), companies might be forced by investors to downsize to increase the value of investors. People will often consider the company as unstable and in such a case, the prospect of convincing people to move from other companies to King Company might not be fruitful in the near future. Customers who are sensitive about how well their suppliers treat their employees might not be impressed with the outcome and might in return reduce their business involvement in their bid to enhance CSR activities, which according to Vuontisjärvi (2013) bear the impact of downsizing. This might have a negative effect on the sales prospects of the company.

During downsizing, the morale of employees sinks to the rock bottom. Drzensky& Heinz (2016) note that, agents’ productivity reduces by 43% during downsizing. In such a case, motivation and other employee behavior might change drastically. For instance, employees might engage in office politics, increase their rate of absenteeism and disengagement, poor commitment, poor customer service, heightened suspicion and physiological breakdown. If competitors learn about these developments, they can easily rival the company and edge it out. When downsizing is effectively complete, the survivors might easily be stressed and experience frequent burnouts especially due to high volumes of work. Their internal relationships might move from bad to worse due to uncertainty and readjustment of their internal relations. Institutional memory might be lost and in return, massive gaps in operational information might reduce. Due to the uncertainty involved, should the company need the services of their already downsized employees, they will ask for a premium compensation package, something that might affect the gains the company has already made.

Conclusion

Reduction of labor costs, especially when it is happening for the first time, can be an uphill task. King Company should come to terms with the current situation and execute plans and means to put everything in order. To do this, the company should roll out the plans with premeditated moves that are cognizant of undesired outcomes. A job-analysis should be done to advise the company on where appropriate actions are necessary and what kind of tools and equipment to be purchased. If King Company settles on downsizing, it should evaluate the effects, both in the short-term and in the long-term.

References

Aichlmayr, M. (2008). Sustainable Workforce. Material Handling & Logistics. Retrieved from: http://www.mhlnews.com/labor-management/sustainable-workforce

Drzensky, F., & Heinz, M. (2016). The hidden costs of downsizing. The Economic Journal, 126(598), 2324-2341.

Jung, J. (2014). Shareholder value and workforce downsizing, 1981–2006. Social Forces, 93(4), 1335-1368.

Muñoz-Bullón, F., & Sánchez-Bueno, M. J. (2014). Institutional determinants of downsizing. Human Resource Management Journal, 24(1), 111-128.

Vuontisjärvi, T. (2013). Argumentation and socially questionable business practices: The case of employee downsizing in corporate annual reports. Scandinavian Journal of Management, 29(3), 292-313.