Some business costs, such as rent, materials, and borrowing, often decline during economic downturns. Rising unemployment may also tempt business owners to assume they’ll be able to pay new hires much less than when times were better. But determining how to compensate new employees involves more than the unemployment rate.
Base wage rates and salaries do not typically fluctuate much in accordance with the overall economy, so don’t make major adjustments to these when formulating offers to job candidates. Keeping salaries fairly stable avoids friction between recent hires and other employees. Long-term employee discontent is not a good trade-off for short-term salary savings. Many employers do better taking a long-term approach and adjusting salaries and benefits to meet typical market conditions rather than risking being seen as taking advantage of an employer’s market.
You can find out what a fair salary is for existing company positions or newly created ones by checking compensation surveys and other sources. The federal Bureau of Labor Statistics publishes several free reports, including information on salaries in broad occupational niches, such as the Occupational Outlook Handbook. Private sources may deal with more specialized data. For instance, Radford, a compensation consulting company, publishes a quarterly survey of trends in technology and life sciences practices.
Bonuses vs. Commissions
Even if salaries don’t change much, adjusting bonuses when times are hard can offer cost savings. Many companies reduce or omit bonuses when earnings are down, especially when the bonuses are tied to profits or other performance measures. If you take this approach, make it clear that bonuses will reappear or improve when the company’s performance does likewise.
Don’t think of sales commission plans in the same light as bonuses when cutting costs, however. When sales are hard to come by, the last thing you want to do is hire inferior salespeople or demotivate otherwise productive members of a sales team by cutting their commissions. If sales are down, commission-dependent salespeople will already be feeling the pinch, and you’ll be paying them less because they’ll be selling less.
Advantages of Hiring During a Downturn
None of this means you can’t save money by hiring during tough economic times. One of the best ways to positively impact your business’s bottom line is by taking advantage of the bigger pool of employees that usually results from a downturn. You’ll find more, and more talented, people are interested in applying for open positions when jobs are scarce. So even if you pay them the same as you would in a better economic environment, your business’s productivity and profits are likely to improve with these higher-quality employees.
Recruiting costs also tend to be lower during tough times. Rather than having to advertise, hold job fairs, pay recruiters, and offer hefty signing bonuses, you may find candidates are coming to you and are less likely to try to negotiate costly compensation packages.
Finally, consider hiring people as independent contractors rather than regular employees during hard times. This way you can try someone out before making a long-term employment offer that could potentially be very costly if things don’t work out.
Mark Henricks writes about business, technology, personal finance, and other topics from Austin, Texas. His work has appeared in the Wall Street Journal, Entrepreneur, the Washington Post, and other leading publications.