Managing Employee Compensation in Preparation for a Recession

As companies prepare for a potential recession, we asked seven business and HR leaders to share their strategies for handling employee compensation. From CEOs to COOs, their insights range from embracing transparency to evaluating the company's financial risk for recession. Here are their invaluable tips to help your company navigate these challenging times.

Embrace Transparency 

Aware of the uncertainties a potential recession can bring, especially concerning employee compensation, a multi-pronged approach is taken. 

First, transparency is ensured by openly communicating with the team about potential financial impacts and plans to navigate them. Honesty is believed to foster trust and understanding. Second, a strong emphasis is placed on performance-based bonuses. This maintains motivation and rewards exceptional work. 

Last, the budget is being revisited, looking for cost-effective measures that do not affect the employees negatively. Employees are the greatest asset, and commitment to supporting them even in challenging times ensures the company's resilience and long-term success.

Vikrant Shaurya, CEO, Authors On Mission

Shift to Performance-Based Incentives

Our primary aim is not to slash salaries, but to evaluate our staff effectively, recognizing the key contributors. Incentives like bonuses are a central tool in our strategy, rather than automatic salary increments. 

We believe this motivates our team members to excel, creating a win-win situation. Salary raises, when given, are no longer solely dependent on the length of service. Performance, key performance indicators (KPIs), and objectives and key results (OKRs) now play a crucial role in our decision-making process.

Fred Winchar, Founder, Certified HR Professional, MaxCash

Cut Perks, Not Salaries

Instead of opting to let employees go, one of the smartest ways a company can reduce a budget to prepare for a recession is by reducing unnecessary perks. 

For example, gym and wellness benefits can be canceled until the recession is over. Team-building activities and company events will be heavily reduced to prioritize budgets, as well as canceling company lunches or ordering in on the company's expenses. This can heavily cut costs without having to reduce salaries or lay off employees.

Max Wesman, Chief Operating Officer, GoodHire

Monitor Economic Indicators for Salary Adjustments

Companies should stay up-to-date on the economic indicators in their industry, analyze how competitors are handling employee compensation, and monitor changes in consumer buying habits. Doing so will provide insight into whether a recession is likely to hit the industry, as well as provide guidance on potential salary adjustments needed to remain competitive.

Darryl Stevens, CEO, Digitech Web Design

Prioritize Compensation and Incentive Systems

If there is an impending recession or the economy isn't doing very well, I assess the business expenses I could cut off first, just in case we need to save. I see to it that incentives would be the last thing to go. 

Without a proper compensation and incentive system, my team would be less motivated to work, and it could hurt the company—and that's the last thing I want. Having a company that is still functioning properly and providing great service can help any financial woes in the long run.

Mark Damsgaard, Founder and Head of Client Advisory, Global Residence Index

Maintain Compensation Stability over Other Expenses

We have repeatedly told our team that compensation and benefit stability is a key goal at QBench. This means that we are more likely to pull back on other regular expenses, like advertising or software licenses. 

We truly believe that a solid, motivated team is what we'll need to weather a recession and bring us into a future booming market. It would be unwise to demoralize the team, so we do everything in our power to make good on our claim.

Trevor Ewen, COO, QBench

Evaluate the Company's Financial Risk for Recession

To prepare for a potential recession, it is important to evaluate the financial risk of your company. This involves reviewing current and projected budgets, analyzing investments, making contingency plans, and evaluating the impact of any changes in economic conditions on operations. 

It also means understanding how certain taxes or regulations could affect your business's bottom line. Once you have a clear idea of the financial risks your company could face, you'll be better prepared to come up with strategies for dealing with them.

Martin Seeley, CEO, Mattress Next Day

Final Thoughts

When economic uncertainty looms, business leaders must do their due diligence to help ensure their company and employees can weather it as best as possible. Being prepared by staying up to date with economic indicators, knowing which expenses can be cut, and remaining transparent with employees can help ensure that your organization can survive a recession without compromising employee compensation.