This is the third in a seven-part weekly series, "Thriving During the Coronavirus," on how insurance agencies and companies should handle the pandemic and ways to work around new economic challenges.
When the economy turns sour, many businesses begin laying off staff.
Their reasoning seems simple: Reducing payroll can compensate for the drop in income, pushing the company back to profitability.
But study after study has concluded that this ends up hurting businesses in the long run.
While layoffs cut costs quickly – and payroll is often one of the biggest – they end up doing major damage to the business down the road.
As one professor at the prestigious Wharton School noted, those businesses are going to need those workers back when the economy rebounds, only now they’re going to have to hire new ones and pay both the time and money to train them.
Will You be Able to Keep Your Staff?
If layoffs are a bad idea, why do so many companies do them? One reason is that they are publicly traded, and Wall Street’s demands tend to impose short-term thinking on business leaders.
But publicly traded companies also have more flexibility and financial options to get through an economic downturn than privately owned ones, especially small- to medium-sized insurance agencies.
This makes your decisions more difficult. Let me lay out a general ground rule I think most of my readers can accept: If you have to give up a million-dollar bonus to keep from laying off staff, give up your million-dollar bonus.
If only this were the dilemma facing most insurance agency owners.
Some Honest Talk Between Owners
I am going to talk about this bluntly. I know it can be a taboo subject. Still…
When times are tough, many small business owners cut their own salary first. That is OK and even admirable.
The back side of this is when times are flush, many small business owners are taking more money out of the business. For insurance agency owners, there is the additional value of the sale of the business to factor into your decisions. This is perfectly acceptable.
In the coming couple of years, with the drop in insurance premiums taking a long time to recover, these practices may be more difficult.
Helping Your Workers Helps You Too
Here is something all of us need to understand. If we lay our staff off, they have less money to buy things from our customers. Our customers then have less money to buy things from us. It is a self-reinforcing spiral.
If each of us acts only for their own short-term gain, all of us will sink.
You really need to talk with your fellow business owners and insureds about this. I have been surprised at the reactions I have seen when local businesses I buy from have been extremely open about this in their public communications.
My response across the board is to do more business with these local businesses than I was doing before the pandemic. I want to support my neighbors as much as I possibly can.
You Can Also Share the Pain
An alternative to terminations is to ask your staff to share the reduction in salary across the board.
Maybe this is not just a roll back of salary. Maybe this is also a reduction of hours worked.
How will your staff respond?
First, they must know you are personally doing as much or more than you are asking of them.
Second, some will tell you pretty quickly that they work much harder than one or more of the other folks at the office. They will suggest that nobody will really be all that upset if you finally let their most annoying co-workers go and so do not have to cut any other salaries.
Do they have a point? Are there some jobs you currently have people doing which really are just busy work? You should hope that is not how your staff sees your contribution.
Layoffs Make Workers Nervous
But let’s say that you were able to sort out which workers weren’t doing the best job and only let them go. That can still hurt your company.
My observation has been when you must let people go, everybody at your office starts wondering if they are going to be next.
Some of them will start looking for other jobs right away. You really cannot blame them.
Your best employees will always be able to find other jobs faster than your less valuable staff. That makes sense. Do you really hope to hire so-so employees away from your competitors? Will layoffs lead to more staff leaving and your company losing your top staff?
When you let people go, the folks that stay are being asked to do more work than they were doing before. This is rarely appreciated as much as you might hope.
Next: How to Grow Your Way Out of a Downturn
Simplistic as it sounds, the way out of less premiums per insured is to get more insureds. In my next article, I’ll look at how you can do this.
If you missed "Part 1: How Your Insurance Agency Can Weather the Global Pandemic and Economic Downturn," click here or Part 2: “How Your Insurance Agency Can Survive a Drop in Revenue Due to the Pandemic,” click here.