How are employers reacting? A recent study by consulting firm Hay Group found that more than 30 percent of respondents are freezing or planning to freeze base salaries, with half that number doing so for all employees. And some 20 percent will either freeze workforce size or conduct layoffs in the near future. Respondents also reported they will change training and development programs (28 percent), change healthcare benefit plans (27 percent), or change retirement savings plans (20 percent).

Further, a survey conducted earlier in 2008 by Career Protection predicts a 37 percent increase in layoffs this year compared to 2007, making this year's forecast the worst in 5 years. Survey respondents were nearly 1,400 corporate executives nationwide. And the Labor Department reported that the U.S. economy scuttled 80,000 jobs last March, boosting the unemployment rate to 5.1 percent from 4.8 percent. BLR subscribers have told us they're considering such moves as suspending their company's 401(k) match and whether they should warn employees that layoffs may be necessary.

But there's a big contradiction here. The same Hay Group respondents who said they were considering layoffs and benefit reductions also said that their #1 concern about the recession was how to retain and motivate their top performers. Clearly, then, employers have conflicting needs: They feel pressure both to cut costs, with human capital usually being the biggest drain on expenses, and to hang onto the talent they really need. We spoke with Manny Avramidis, senior VP of HR for the American Management Association (AMA) to ask how he advises organizations to cope with the possibility or the reality of recession.

Avramidis points out that a rising rate of unemployment doesn't necessarily mitigate the war for talent: Many available workers lack the skills that employers seek. After all, you're not just looking for warm bodies. And, companies tend to be leaner than in past recessions because of outsourcing, global mergers and acquisitions, and layoffs they may have conducted in the early 2000s. "Companies should approach this downturn by continuing to invest in human capital," says Avramidis.

The first step in preparedness is a vibrant and accurate performance assessment process that identifies where every employee stands in terms of the organization's goals, the employee's contributions, and where he or she may need to improve. That process will inform both front-line supervisors and HR pros about the key players in the company, as well as who's in line for important positions in terms of succession planning.

A Closer Look

Avramidis has been through at least one other recession, the one that began in 2001, in his tenure with AMA. He firmly believes that layoffs should be "resisted," because talent is so scarce that if a firm downsizes, it may not be able to rally when the recovery comes. The foundation of his approach to this recession is communication. "Be transparent," he advises. Not only do employees need their individual feedback from the company's performance management system but they also need to know virtually everything that top management knows about the organization's ongoing results.

Armed with that information, employees need to be engaged in developing strategies for the corporate response: Are there less profitable product lines that should be dropped, or should marketing efforts at least be cut back for them? Do workers have ideas about redundant processes or other kinds of activities that could be eliminated to save money?

Given detailed and up-to-date information on their employer's financial results, employees will be more prepared for news of layoffs should they be necessary. But Avramidis suggests that employers go further, by explaining beforehand exactly what will happen if layoffs are conducted: Are they expected to be temporary or permanent? Will outplacement services and/or severance packages be provided to those laid off? What services will be available for those not laid off--the survivors?

In addition, Avramidis recommends that the first candidates for layoff be chosen based on where they work in the organization. That is, target first the employees in less-profitable lines of business or activities the company may eliminate. Even then, don't let a top performer go simply because he or she is in the wrong line of business. Then, if a second layer of jobs may need to be cut, shift the focus to where employees stand in terms of their performance.

In order to resist layoffs, should employers take such preliminary measures as freezing salaries and/or reducing such benefits as healthcare coverage or retirement plans? Avramidis is reluctant to endorse such moves, because they penalize all employees the same way rather than differentiating among them based on their performance and their organizational roles. "Don't force out your best people because they can no longer afford to stay with you," he cautions. Only an employer that has developed significant credibility and employee loyalty may be able to get away with such across-the-board penalties, Avramidis believes. "Do your best to protect your most valuable human capital," he concludes.