Rules of Engagement

“It was very difficult for me to fire people because we are like a ­family here,” says Gregory Cancryn, owner of Payment Transaction Systems in Atlanta. “For me it felt like a personal failure.” Cancryn had been running his 29-employee credit card processing company for 10 years, when in late 2006 he first noticed a decline in consumer spending and the trickle-down effect that it had on his company’s bottom line.

Actual revenues were significantly lower than his projections suggested–they should have been 50% higher. “As a business we saw revenues drop, we reacted accordingly,” he recalls. “We cut costs, renegotiated contracts with vendors, eliminated services, and brought the services we could in-house. We cut employees who were not pulling their weight and had people doing more than one thing. Rather than laying people off, we decided to fall a month behind on paying the lease for two of our offices. And that’s how tight things got.”

Cancryn says he figured things would get better and the next month, he would just double-up on the payment. But things did not get better, so he was forced to lay off six employees over the course of the next two years. “It was a last resort.”

While layoffs, salary cuts, and furloughs can help some small businesses stay afloat during an economic downturn, living through it can be traumatic– causing feelings of anger, anxiety, insecurity, and a sense of betrayal for those who are let go as well as for those employees who remain

on the job. And, like Cancryn, business owners may feel a personal sense of failure for having to take such measures. Left unchecked, any of these negative emotions can wreak havoc in a workplace already weakened by financial crises.

“The first casualty is usually morale, quickly followed by performance and retention of top talent,” says Chris Bryant, founder, executive coach, and national speaker of Beverly Hills, California—based Rapport Strategies Group. With fewer resources, small business owners must face these difficult times and make hard choices.

In doing so, they regrettably have to manage the results. According to a 2007 study conducted by the global professional services firm Towers Perrin, there is a strong connection between employee engagement and company financial performance (see charts). In Closing the Engagement Gap: A Road Map for Driving Superior Business Performance, engagement is defined as employees’ willingness and ability to contribute to company success. Findings conclude that “the more engaged the workforce, the better the company is likely to perform on a range of key financial metrics.” With a direct correlation between ­productivity and employee morale, a solid confidence and engagement throughout your company–from the top down as well as the bottom up–is necessary if you intend it to increase profitability and thrive.

All Together Now

“First, be aware that what it takes to motivate employees during a downsizing period is different than during a period of growth,” says Bryant. In times of prosperity, employees basically feel grounded and can focus on their daily tasks. But these

days your employees are likely to be distracted and disengaged by the reports of “doom and gloom” bombarding the airwaves and the rumors swirling around the office at work. Now, more than ever, they are looking to you for positive leadership and reassurance.

For example, one of the most powerful things you can do as a leader, to show your employees your loyalty toward them and usher in an environment of camaraderie, is to be the first person in the company to take a salary cut. “If you take this step, they are sure to follow if they care about saving the company and preserving a job for themselves later,” says Adrienne Graham, chief talent acquisition consultant and CEO of Hues Consulting & Management Inc. in Alpharetta, Georgia.

It’s also important to let employees know that it requires a team effort to get through the tough times, according to Tanisha Russell Day, managing consultant of KEY HR Consulting L.L.C. (www.keyhrconsulting.com) in Teaneck, New Jersey. “When they see you roll up your sleeves and assist with duties outside of your core responsibilities, that will promote teamwork and boost morale.”

Communication is critical during times like these. Pretending things are OK or keeping silent about the state of the company are big mistakes. “Before this recession you could just tell your employees how things were going to be done. Today, you need to ask them to participate,” says Douglas Duncan, a 30-year human resources veteran and president of Maplewood, New Jersey-based Your HR 9-1-1.com.

For example, when you are looking for places to cut costs, instead of singling out one department to take the brunt of it or making across-the-board cuts, ask your people where they think they can save the company money or what revenue-generating ideas they may have, such as utilizing free or low cost Web conferencing systems such as Skype or telecommuting to save money on utilities. “If you ask them to cut back, you cut back as well and show them. It could be carpooling to work, converting travel meetings to Web conferences, or bringing in your lunch. You can scale back on expensive items and client entertainment expenses,” says Graham. “Whatever you choose to do, make sure your staff knows about it.”

During an economic downturn, employees often feel high levels of stress and powerlessness–a toxic combination. It’s up to you to remind them that you are all invested in the success or failure of the business together. Making the effort to invite each employee into the fold during formal and informal settings and giving them the opportunity to contribute to the continued success of the business in new ways can calm fears, create a sense of camaraderie, and enhance productivity.

Letting Go Gracefully

Cancryn says he didn’t want any of the employees he fired–mostly support staff he interacted with on a daily basis–to feel betrayed. So, before letting anyone go, the 49-year-old exec spoke to each of them individually so they would know their positions were in a vulnerable spot. “I told them where we were as a company, I shared my decision-making process about the layoffs, and I also gave them a chance to give me their feedback,” he recalls.

“They weren’t really surprised by the news because they already knew what was going on in the economy and they could see that the work just wasn’t there for them the way it had been in prior years. But, I think they appreciated the communication because they still came to work, they did a good job, and most weren’t speaking negatively about me or the company itself.”

Experts applaud Cancryn’s approach, noting that open communication with employees about pending layoffs is a key ingredient to keeping morale high. “If you know a lot of people are going to be laid off, it’s better for everyone to hear about it as much as possible beforehand,” says Russell Day. A failure to communicate openly and honestly with employees can be a recipe for disaster.

Layoffs may be necessary to help your company’s bottom line, but a poorly managed execution is a distraction that can burn bridges, destroy morale, and hinder productivity. If you must terminate an employee, do so with kindness, honesty, and respect–for the good of that individual, the morale of the co-workers they are leaving behind, and your company’s reputation. How you operate during these tough times will impact how well you move forward once they’re behind us.

This story originally appeared in the July 2009 issue of Black Enterprise magazine.