The Value of Long Term Employees

There are several strategies in a business cycle downturn, lay offs being one of them.

Lately there has been a new practice of laying off your most senior workers because they are the highest paid. We have seen Glenn Taylor do this first with the Timberwolves where ticket prices are now at a all time low, and then its operating companies. I have a friend in the packaging industry who recently lost his job to someone half his age. The lack of experience and judgment in his replacement is staggering and very costly.

If you really think about it, why are senior employees paid higher. Usually because their experience allows them to complete tasks more quickly with fewer mistakes. One mistake that could have been avoided through experience will quickly pay for their higher salary many times over.

At a time management should be looking for how an experienced employee can cover more areas and get them through the tough times, some companies do the opposite.

I used to work for a couple visionaries named Bill and Dave. Hewlett-Packard (HP) was in a down turn in the 1980’s and faced laying off workers. Instead they realized that the downturn would be temporary like all those times before. They asked everyone to take a 10% pay cut. Hourly employees took every other Friday off; management just endured a pay cut. Moral was high because no one was laid off. The monetary value was met with the 10% in wage reduction across the board. Sure no one likes taking a cut in pay, but being able to keep your job at 90% of pay had a lot of value.

And they were right, in three months things had turned around, only H-P was able to quickly bring back workers to full staff and pay to meet the demand. Three months later middle management was back at full pay and three months after that senior management was back at 100% pay. Don’t think we’ll see that type of program from GM, too bad.

I help people buy and sell businesses every day. The true value of the business isn’t the sum of the buildings, machines and office equipment. The true value is how well all those fixed assets interact with “human assets” to make cash flow.

Want your small company to be more valuable, keep your long term, tested and trusted employees. Believe me, Buyers of businesses are always concerned about losing that “human asset” during a business sale. Buyers put a higher value on businesses with long term employees. Why, because they know the business will perform better with that talent. Don’t make the penny wise and pound foolish decision with employees. Try something visionary!