Ask EIG: What are the Best (and Worst) Ways to Cut My Budget?

Dear EIG,

The budget cuts for all federal departments seems to be certain to happen. During the mid-90s, federal employees’ morale was adversely affected by the way we imposed the cuts. In our attempts to preserve workforce morale, what would be the worst way to implement these cuts and what would be the ideal way to implement these looming cuts?

-Anonymous

Let there be no doubt that shrinking an organization is far more difficult and painful than building and growing one. Indeed, workforce cuts will always be painful for workers, leaders, and organizations. The important question is how to impose the least pain at the lowest cost for all involved.

(HAVE A QUESTION? Send your management questions to AskEIG@govexec.com.)

Let’s focus on two competing approaches (although there is a spectrum of approaches) to personnel reduction: gradual and deep.

Gradual Reductions, which some in the government refer to as “slicing salami,” typically are accomplished through retirements in conjunction with pay and hiring freezes that can last many years. Congressional and agency leaders usually adopt a salami approach with the idea of minimizing employee and leadership pain by retaining as many employees as possible, reducing the need for major reorganization, and minimizing the loss of employee motivation.

The downside of gradual reductions is that they send the wrong kind of economic and career signals to workers: don’t expect rewards or advancement for many years to come even if you work hard. If your workers come to expect that they have no pay and promotion opportunities, they are more likely to engage in four behaviors that undermine worker happiness, leadership effectiveness, and organizational culture. These behaviors can drastically erode organizational performance for years to come. The behaviors are:

1. Your better and more productive workers with economic and career aspirations will leave the organization, significantly reducing workforce productivity.
2. With expectations that hard work won’t translate into pay and promotion (and social, emotional, and ideological motivators are insufficient to compensate—see EIG January 25, 2013) and an ongoing fear of future forced departure, workers are more likely to not work hard, not take risks, and keep their heads low to avoid being targeted.
3. Workers always engage in social comparisons. In growing organizations, comparisons stimulate hard work and investments in improving their capabilities. In gradually shrinking organization, social comparisons create a special kind of invidious anger where workers “blame management” for causing perceived inequities. Workers engage in politicking that seeks to punish managers for creating inequities and level workers so that none get ahead. These behaviors poison relationships, collaboration, and organizational culture and are disastrous for organizational performance.
4. If a peer group member is promoted, social comparisons generate another kind of divisive behavior. Knowing that promotions are rare, peers often believe they were unfairly passed over and sabotage the promoted worker even if the individual is a friend. Hiring from the outside can eliminate sabotage but also eliminates expectations of career advancement, which further diminishes motivation. 

For the reasons above, gradual reductions create a kind of long and aching pain for workers, leaders, and the organization. It imposes pain on workers by making them unhappy, unmotivated, and unproductive for the entire episode and beyond. Those who retire early can be unhappy with their premature departure and so too can those who left to seek employment elsewhere. Leaders face their own challenge in such an environment as motivation can become practically impossible. The net result is a downward spiral of organizational performance.

A Deep Reduction involves a one-time cut in the number of personnel with the purpose of reducing manpower far more than is immediately needed. Such a decline also is associated with substantial organizational restructuring and, therefore, is like a brief but sharp pain. A deep cut (and adopting a promote-from-within policy) is designed as a one-time event so that workers can expect that they will have pay and promotion possibilities in response to hard work and investing in their capabilities.

A deep cut obviously is personally costly to those forced to leave the organization. Leaders often attempt to partially offset these costs by offering job placement and training services, which can be effective especially in a growing economy. Although it is difficult for someone losing their job to understand, a new job with potential for increasing pay and promotion—not available in a slowly shrinking organization—has the potential of offer economic, emotional, and social rewards that may somewhat compensate for the pain of forced departure. Importantly, those who remain in the organization frequently face the costs of survivor’s guilt. But, a recent Excellence in Government article provides ideas for lowering these costs.

With respect to leaders, a deep cut imposes substantial costs because of pain experienced by forcing departures and the cost of massive reorganizing with fewer workers. But on the plus side, a deep cut can keep the workers from adopting the four disastrous behaviors. If workers expect pay and promotion in response to hard work then they will eventually respond accordingly, which will help retain and attract a highly capable and motivated workforce, which are important inputs for a productive organization.

In summary, the fundamental trade-off for reducing employment is between a brief sharp pain of a deep reduction and a long aching pain of gradual reductions. History shows that a long aching pain corresponds to the enduring loss of talent and motivation, destructive behaviors, and falling organizational performance. Although it may at first seem counterintuitive, a full weighing of the costs and benefits suggests that the sharp brief pain of a deep reduction may impose the least pain at the lowest cost for workers, leaders, and the organization and the approach may better maintain and support one of the greatest public service workforces in the world.

Duce a mente (may you lead by thinking),

Jackson Nickerson

In partnership with Brookings Executive Education, Excellence in Government is now taking, and answering, your most difficult management questions. Send your questions to AskEIG@govexec.com.