Cost-cutting for businesses

In prosperous times, businesses frequently refer to their employees as "our most valuable resource." It also means that such priceless resources are at danger because human capital is frequently one of the highest expenses. Although it's a sad fact that layoffs are occasionally the only way to save a business, my hope is that each leadership team carefully examines every aspect of their operations for alternatives before reducing their personnel.

Many firms will only survive the present economic situation if they were designed to. Those that have the resources ought to start making preparations for upcoming market downturns. And regrettably, many of these budget cuts have an impact on employee salaries. The following is not always true: Some businesses set aside funds for crisis management to safeguard workers' compensation in certain circumstances. However, most companies will still have to make salary cutbacks in order to keep operating budgets as low as possible and prevent layoffs or closures without the huge riches of Amazon or Facebook. But before making adjustments to employee pay rates, businesses should think about the following:

In 2023, the global business landscape has been fraught with economic uncertainties, leading to a significant rise in layoffs across various industries, particularly in the tech sector. According to, the running total of layoffs for the year so far stands at a staggering 201,860, based on full months to date. Notably, the tech industry has already surpassed the total number of tech layoffs recorded in the entire preceding year, 2022.

As businesses face mounting financial pressures, it becomes essential to explore strategic cost-saving measures that prioritize job preservation and maintain operational continuity. In this article, we delve into several proactive approaches to address financial challenges while safeguarding the workforce.

1. Put Promotions and Raises on Hold

During times of economic uncertainty, businesses must carefully manage their resources. One prudent approach is to halt all promotions unless they are critical to the company's operational continuity. In such cases, communicate openly with the promoted employees about the change in title and responsibilities, emphasizing that salary increases will be deferred until financial conditions improve. This measure ensures that valuable funds are allocated to essential business needs and job preservation. Additionally, transparently communicate to employees that, in order to safeguard jobs, the company must operate as efficiently as possible, necessitating sacrifices in bonuses.

An employee at The Nudge Institute told us - During the period of uncertainty, the organization actively supported the affected staff in finding new job opportunities, diligently tracking their progress and sharing regular reports. After about six months, the organization stabilized across its projects.

As the situation improved and the organization grew, they eventually hired back people, but not necessarily the same individuals. Job profiles and roles had evolved, leading to new hiring requirements. The organization's team size eventually grew to around 550 employees, a substantial increase from its pre-pandemic level of around 150 employees.

2. Consider Executive Compensation Adjustments

Leadership plays a pivotal role in steering a company through tough times. Businesses should consider reviewing executive compensation to reflect the current economic climate. One option is to reduce executive salaries by 15-25% or freeze cash and equity bonus payments.

For publicly traded companies, working with the compensation committee (which comprises individuals from the board of directors responsible for executive compensation) can provide valuable insights. Reevaluating existing incentives and equity programs ensures they align with the company's present priorities and demonstrate sensitivity to shareholders' concerns amid declining stock prices.

3. Be Frugal: Assessing Tools and Subscriptions

A thorough review of all active tools and subscriptions can reveal opportunities for cost-saving. First, analyze whether it is possible to downgrade subscriptions based on usage, thereby reducing expenses. Secondly, identify any inactive subscriptions that can be unsubscribed from, potentially shifting to free or more cost-effective alternatives. By embracing frugality and optimizing expenditures, businesses can channel funds towards critical areas while reducing unnecessary expenses.

4. Implement a Hiring Freeze

Protecting loyal and skilled employees is paramount during financially challenging periods. Therefore, businesses should carefully evaluate the necessity of hiring new talent. If employees leave the company, thoughtful consideration should be given before immediately replacing them. Instead, focus on essential hires only, and where applicable, reallocate headcount to departments that contribute significantly to customer value or overall revenue. In some cases, a complete hiring freeze may be necessary to weather the storm and ensure the sustainability of existing jobs.

5. Explore Job Sharing

Job sharing presents a unique approach to cost-saving, merging a pay cut with reduced working hours. Under this model, two employees share responsibilities and working hours of a single job, effectively reducing the overall salary burden on the company. Additionally, this arrangement offers employees opportunities to seek alternative income sources during their reduced working hours, providing them with some financial stability during challenging times.

6. Offer Voluntary Layoffs

To support employees' choices and career transitions, businesses can introduce voluntary layoff programs. Voluntary layoffs offer eligible employees the option to accept a severance package, facilitating early retirement, career shifts, or personal changes that they might not have been able to consider otherwise. While adhering to legal requirements for each employee based on tenure, age, and ability to find alternate work, businesses are encouraged to go beyond the minimum legal obligations and use the opportunity to celebrate departing employees' contributions.

An employee at The Nudge Institute told us - In March, a significant wave of events occurred. In August, it became clear that there was no turning back. The organization faced challenges due to a change in context. At that time, the organization's focus was on Gurukul, a 90-day residential training centre for rural youth, particularly women. Trainers and trainer-of-trainers played a crucial role in the training process. However, when the decision was made to transition to online processes, the physical field teams and those involved in face-to-face mobilization were most affected. The shift impacted their ability to secure jobs and carry out their usual responsibilities.

7. Salary Rollbacks: A Creative Cost-Saving Measure

Salary rollbacks present an innovative cost-saving strategy that can benefit both businesses and employees. This approach involves reducing everyone's salary to the amount they were earning before their last increase. As a result, businesses immediately save on the annual increase budget (typically 3%-4%) across the entire workforce. Although salary rollbacks might not be ideal, they prove to be a more favorable alternative to job cuts, maintaining the company's talent pool while effectively managing financial constraints.

8. Implement Pay Cuts Strategically

In situations where substantial cost reductions are imperative, businesses may consider implementing pay cuts for employees. Instead of resorting to layoffs, requesting employees to accept temporary salary reductions (e.g., 20%) can help preserve jobs. Most employees would prefer to keep 80% of their salary rather than losing their jobs entirely. However, transparency is crucial during this process. Businesses should clearly communicate the necessity of the pay cuts, involving employees in determining the magnitude of their individual reductions. Additionally, it is vital to establish a definitive time frame for the pay cuts or offer retroactive salary adjustments once the financial situation stabilizes.

An employee at The Nudge Institute told us that leadership positions were relatively less affected, as they could adapt to different projects or products. Nevertheless, the organization faced challenges during this period of transition away from physical mobilization.

During the challenging times when the organization faced financial constraints due to the pandemic's impact, the CEO took proactive measures to handle the situation. First, they organized a town hall meeting to communicate the reality of the situation to the employees. The CEO asked the team to voluntarily forego their salaries for the next quarter until a clear plan could be formulated.

More than 50% of the employees willingly agreed to forego their salaries, providing some financial relief to the organization. However, after a few months, it became evident that transitioning online would not be feasible, leading to further layoffs, particularly among the field staff.

In times of economic turbulence, businesses face formidable challenges in maintaining financial stability and preserving jobs. Implementing proactive measures can help mitigate the impact of financial uncertainties while prioritizing the well-being of the workforce. By putting promotions and raises on hold, considering executive compensation adjustments, and taking other necessary measures, businesses can navigate these challenging times with resilience and emerge stronger on the other side. Embracing a people-centric approach and fostering transparent communication with employees during these cost-saving measures will foster trust and loyalty, contributing to the long-term sustainability and success of the organization.

At The Nudge Institute, what truly matters is not just the ability to articulate ideas, but how things are communicated. The communication style used at the institute motivated people, with approximately 50% of individuals being positively impacted and giving up a share of their salaries. The communication style is refreshingly blunt and direct, with no sugar-coating or victimization. Instead, they lay it all out, present a few solutions, and remind us that it's not the final fix, but just a temporary boost to tide us over for a few months. No hidden agendas, no seeking glory or appreciation, just a straightforward approach that keeps us all motivated and engaged. It's like an open invitation to tackle challenges together.

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