Talent is always critical to long-term business growth. But in the current climate organisations have the added problem of having to find immediate cost savings without driving out key employees and impairing the business in the long term. This article examines some of the ideas we have recently seen used to achieve that balance and also what can be achieved based on existing contractual flexibility.

The good news is that redeployment, creating a flexible working environment and offering benefits, including short-term sabbaticals, have all proved to be successful measures to ensure planning for the upturn.

Employees will expect to see their employers taking protective measures to secure the workforce's position as much as possible. These can include not replacing leavers -  attrition rates are currently as low as zero; a hiring ban; executives sharing the pain with zero salary increases; and severely reduced or zero bonuses. Rather than hiring for strategic positions, it is important to look at the existing workforce and see if there is an acceptable level of re-skilling or retraining that can be achieved to use existing talent.

Once protective measures have been achieved to ring-fence core staff, it may be time to look at alternatives like part-time working that could have a deeper impact (the four day week has seen a resurgence) or layoffs. It is very important to think in advance about what happens when the market turns. If the business does not pick up and the employer is forced to make redundancies, employees may want the security that their notice pay and redundancy pay will be based on their former full-time salary, and not the reduced part-time rate they had been forced to accept to try and save their position in the short term. With careful drafting this can be achieved.

Some employees may be prepared to accept an unpaid, short-term sabbatical. They may want to know what happens when the sabbatical is over: will they get their job back? If they are subsequently made redundant, will the period of sabbatical count as continuous service?  These are issues to be explored up front.

Staff costs are often the biggest single item of expenditure in a people business: salary and bonus figures come straight off the top line. Even in this market, when many are simply glad to keep a job, some see a salary freeze as a reduction in pay in real terms. It can be culturally very difficult to impose a freeze on employees if they have an expectation of an increase based on custom and practice. A well-drafted salary review clause will simply provide for an annual review, not necessarily an increase. Here transparency and consultation, as well as a top down approach, can smooth the introduction of a pay freeze.  Illustrating how many jobs a pay freeze can save is a sensible part of any consultation exercise.
 
In planning for the future, therefore, it is important to look at existing bonus arrangements as an extension of staff salaries. Too many employers have been caught out with guaranteed bonus arrangements; too many employees see bonus as an entitlement and often the single biggest part of total remuneration. Clear and transparent bonus scheme rules, particularly around discretions to be exercised in non-contractual schemes, are helpful, and awards based on overall company performance rather than individual or team performance should be a very significant factor. Similarly, bonuses that are seen as an incentive to retain talent rather than a reward - or somehow earned - are going to be key for retaining talent when we inevitably pull out of this recession.

Top tips

• It is very unlikely there will be any contractual entitlement to force these initiatives on employees; this is about consultation and consent

• Level with employees - if you are forced to go down the collective redundancy route, you will need to explain the underlying business reasons behind the proposed redundancy. Be prepared to share this information with employees, on a voluntary basis, if you are trying to avoid that route and come up with other solutions

• Listen to your workforce - many creative alternatives come from employees themselves - job-sharing, cutting the working week or temporary layoffs are all actual examples that have been offered as part of redundancy consultation exercises.

• Carefully document any changes - clarity and mutual understanding often avoids difficulties down the line

Julie Quinn is a partner in the employment group at Nabarro