Here’s a scenario: you’re a manager of a marketing communications department with ten employees, and you’ve just been given the word from upstairs that you need to cut $200,000 out of your payroll by the end of the week. What do you do?
Any manager will tell you that cutting payroll is among the least pleasant duties required of management, but it’s a necessary evil. When any manager is given an order to cut his or her payroll, he or she must consider three major items:
- Which team members generate the least return per dollar spent on payroll;
- Which members of the organization will fill the roles vacated by terminated employees;
- And how the team as a whole will be able to maintain their output, despite the loss of personnel.
We’ve discussed a number of options for doing more with less recently on the blog, but today we want to focus specifically on the first two items: determining who to cut and how to replace them without new hires.
Considering Different “What If?” Scenarios
Consider an organization chart of your team or department as it is currently:
You have ten people in your department, including yourself. You need to eliminate $200,000 worth of payroll without adversely affecting output—how do you do it? Well, before you begin considering individual performance, you first need to list all of the payroll information on your org chart, like this:
Having the exact payroll numbers on the org chart makes it easier for us to see just how far any of our possible personnel changes brings us to our goal of a $200,000 payroll cut. Given that we have all of the information, it’s time for us to play a little “what if?” with our org chart.
First we have to determine who our key employees are – who are the people on my team who are so productive or knowledgeable that we would simply be unable recoup the loss of output if they left?
In this scenario, we have three people who are truly “key employees.” First, there’s David, who has been with the company for many years and understands every aspect of the company’s marketing, inside-and-out—he knows how to communicate that through all of his artwork. Not only does David produce great work, but he produces a lot of it and has received incremental raises over the past three years.
George is another keeper—although he’s new to the team, his contributions make all of the MarCom webpages more interactive and memorable for every potential customer who visits them; the quality of the average user experience would diminish significantly without George’s work. Not only is George proficient at a technical level, but he’s also a self-starter and actively improves the customer experience throughout the website without having to be told to do so. Replacing him would be excruciatingly difficult.
The last person that we’re not going to consider in our payroll cut is Joanne; she is able to convert the production team’s work into web pages more quickly, efficiently and accurately than anyone else. And she is the only person on the team who understands how every detail of the website can affect the user experience. It’s largely due to her ability to anticipate the behavior of potential customers which has made your company’s websites so successful.
Every other position on this flowchart is fair game for elimination.
Scenario 1 – Eliminating the Most Expensive Employees
You have two managers who report to you: Tom and Janice, who are paid $100,000 each and manage four people a piece. They were both promoted to managers a year ago and neither one of them has performed spectacularly. Tom’s team is productive but they don’t consistently produce high-quality marketing materials unless David does most of it, and Tom has been slow to correct the problems.
Janice is another story—she is always on the offensive and is the first person to blame someone else when something goes wrong. She’s disrespectful to Tom and his team and spends more time defending her own team’s errors than she does correcting them. Her transition from development to management has been difficult and it’s clear that she’s not cut out for it.
The rationale here is that under this scenario you only have to cut two employees, so the size of your workforce will not be as small as it would be had you cut three or four lower-level people.
If you eliminated both of these employees, you would meet your goal of cutting $200,000 out of payroll. Here’s what your org chart would look like:
Payroll cut so far: $100,000 (goal: $200,000)
I went ahead and flipped the org chart onto its side (you can do that automatically in SmartDraw) to make it easier to read on this blog, but the important thing to note is how your number of direct reports has increased four-fold since you eliminated Tom and Janice. Instead of having two mid-level managers reporting to you, you now have eight employees who report directly to you. This means that your personal workload is going to increase significantly and all of the employees will receive less supervision overall.
Given the quality control issues that both teams have been having, less management will mean less review of work and probably more errors. Clearly, eliminating just the highest paid positions isn’t a good solution.
Scenario 2 – Eliminating the Poorest Performers
Rather than merely eliminate the two most expensive positions from the payroll and calling it a day, we will consider the performance of every employee and cut those who produce the least amount of value relative to their compensation. We’ve already determined that David, George, and Joanne are well-worth what they are paid and we’ve determined that Janice is a drain on morale and actually hinders the productivity of both teams. Janice’s position will be eliminated.
Given that information, here is what our flowchart will look like:
Payroll cut so far: $100,000 (goal: $200,000)
Your number of direct reports has increased from two to five, but you’ve eliminated a problem employee and saved $100,000 worth of payroll per year. Your personal workload is going to increase somewhat and you’re going to have to spend some more time attending to the day-to-day activities of Janice’s team. You’re confident that you can pick up the slack.
We’re going to keep Tom for now—he’s not a spectacular manager, but he’s been learning as he goes and has shown signs of improvement; so long as Tom keeps learning how to become a better manager, he’ll be increasingly valuable.
Let’s consider your other direct reports. George and Joanne are all-stars and they don’t need to be looked after; Shauna isn’t outstanding but she works well with George and Joanne. Michael, on the other hand, is error-prone and a poor producer; it’s clear, based on the quality and volume of Michael’s work, that he does not care. Your company can do without him.
Joanne has already been tidying up after Michael, so eliminating Michael doesn’t adversely impact your output much. In addition, most of your time spent managing your new reports would probably be spent managing Michael, so eliminating him frees you up somewhat.
Payroll cut so far: $165,000 (goal: $200,000)
In order to make our goal, we only have to eliminate one more employee; everyone else from Janice’s team will remain intact, so we’ll have to look at Tom’s team. We know for certain that we’re keeping David, given his excellence; Robert and Cheryl are both decent producers, even though Cheryl occasionally gets the technical details of our products wrong and Robert’s copy is sometimes off; this leaves Basil.
Basil’s work is high quality, but he is slow to adapt to changes in the marketing plan and has bungled the past few major assignments that have been handed to him. He is a drain on management’s resources and his mistakes, although infrequent, have been costly. David can probably pick up some of Basil’s work and Tom himself is a decent graphic artist, so the two can split Basil’s workload reasonably well.
Let’s see how this would look on our org chart:
Payroll cut so far: $225,000 (goal: $200,000)
Your number of direct reports is down to four instead of five and Tom’s management workload has decreased somewhat. Basil’s loss in productivity will be hard to replace, but Tom and David are going to do their best to maintain the same level of output.
You get the idea—you can use an org chart as a modeling tool to determine how many direct reports are going to fall onto your plate and you can use it to see how eliminating positions will affect your overall payroll numbers. It doesn’t take long to play “what if?” using this technique. And for more complicated management scenarios, like ones where you have to change the roles and positions of employees, this method really helps paint a clearer picture of how your organization will be affected by your personnel changes.
Next time we’ll cover the third bullet: how to get the job done, even if you don’t think you have enough people to do it.
Want to play “what if?” with your own organization? Download a free trial of SmartDraw and make your own org charts!
If you liked this post, make sure you subscribe to our RSS feed or follow us on Twitter.
