Economy

Okay, a recession’s brewing: what do we do?

Corporate America is poised for another recession: HR experts explain how HR leaders can prepare their companies to weather the storm.
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Cemile Bingol/Getty Images

· 5 min read

During the 2008 recession, Dan Kaplan, a senior client partner at Korn Ferry, said HR leaders proved they weren’t on payroll to “plan the company picnic.”

When faced with adversity, he said HR stepped up to “drive the business,” making “smart, tough, strategic decisions” akin to those the finance team was making down the hall.

Now that corporate America is poised for another recession, HR Brew talked to experts about how HR leaders can prepare their companies to weather the storm.

First things first: Talk to your employees

According to SHRM president Johnny C. Taylor Jr., today’s workforce falls into two camps: older workers who are likely seasoned recession pros, and younger workers who, he said, have “never experienced any type of slowdown,” aside from the 2020 recession driven by Covid, the worst of which, he noted, was offset by government aid.

Taylor said HR should reach out to younger workers now to help them prepare. He recommends encouraging them to “slow down their spending,” explaining that their stock options may go “underwater,” and, if possible, offering a financial-planning benefit.

Kaplan agreed, adding that in a polarized climate, communications from companies may be workers’ most objective source of information. The best companies, in his opinion, will be those that offer information that isn’t “alarmist” or “partisan,” but answers the questions: What’s happening, what it means, and how is the company staying profitable?

Avoid knee-jerk layoffs

Kaplan said companies that laid off workers at the start of the pandemic, only to compete to hire them back (at a premium) during what he called the “tightest labor market that we have arguably ever seen,” should have learned their lesson about knee-jerk layoffs.

This time around, Kaplan suspects companies will think more carefully before they “cut until [they] hit bone.”

Brian Kropp, Gartner’s chief of HR research, added that many companies are already operating at bone. In a typical recession, Kropp said, companies might lay off 2% of staff. Currently, he said, many companies sit 5% below their ideal headcount. If HR laid off additional employees, they’d be severely understaffed, at 8% below full capacity.

Kropp said it’s incumbent on CHROs to ensure CEOs and CFOs understand how difficult it currently is to recruit and retain staff before a recession gets “too painful.” If CHROs wait until a contraction, Kropp said, they may find it’s “too late” to get the CEO’s ear.

Instead, Kaplan said, HR professionals should see a possible recession as an opportunity to solve some of the staffing shortages that have plagued them over the past year. As the power that’s been in the hands of employees shifts back to employers, Guy Berger, principal economist at LinkedIn, said a recession could help slow the churn.

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“Everyone’s been worrying about the Great Resignation. Now is a great time for companies to be reminding their employees about how good they have it in their company,” Kaplan said.

If there are no layoffs, what can HR do?

To cut costs, Kropp advises taking a candid look at all positions and recognizing that “not all jobs are created equal.” For less essential roles, HR can slow down hiring or allow “natural attrition” to occur.

Taylor said leaders may opt for a “serious revisiting of salaries” in lieu of layoffs, pointing to the pandemic as an example. “There have been many examples of companies that…bring their employees together and say, ‘Listen, I could lay you all off or I could give everyone a 10% decrease in pay for us to get through this hell that happened during the pandemic.’’’

If this sounds harsh, consider what might happen if you choose to do neither. On June 1, HR Brew chatted with Kristen Dean-Hayward, head of people at email app Superhuman, who dismissed the idea of asking employees to take pay cuts.

“Many surprisingly large, well-known established organizations did mandatory 15, 20, and 30% pay cuts to their team with no notice as a way to reduce costs,” Dean-Hayward said. “And we’ve decided that’s not a strategy that we intend to employ for the foreseeable future at Superhuman.”

Two days later, Rahul Vohra, CEO of Superhuman, announced on Twitter he had laid off 22% of the company. By email, a Superhuman PR representative told HR Brew that the layoffs haven’t changed the company stance on pay cuts.

That baby isn’t cute.

Should there be a recession, Kaplan said people professionals need to remember just how high the stakes are and advocate for the options they think best.

“Give feedback to executives, tell people that their baby’s ugly, if you will. Give that kind of tough feedback,” Kaplan said. “This is going to be one more moment for an already exceptionally fatigued and drained HR population to stand up and be heard and make sure that we’re not just making short-term accounting decisions, but we’re making long-term people, talent, business decisions.”—SV

Do you work in HR or have information about your HR department we should know? Email [email protected] or DM @SusannaVogel1 on Twitter. For completely confidential conversations, ask Susanna for her number on Signal.

HR is challenging. HR news doesn’t have to be.

HR Brew keeps you effective in the fast-changing business environment.