The Big Chill

​Ellen Raim, principal in the Corragio Group, an HR consulting firm in Portland, Ore., has orchestrated hiring freezes in two companies during the last several years, first as director of worldwide staffing at Intel and again as the vice president of HR at Electro Scientific Industries.

Senior leaders understand that salaries represent one of the largest corporate costs, Raim points out. "If hiring can be controlled, the theory is that more drastic actions such as layoffs can be avoided."

She numbers among many HR professionals who have valuable advice to share with peers when it comes to implementing these measures. And their knowledge comes at the right time: To survive the current economic crisis, many companies are adopting hiring freezes. Not as drastic as layoffs and not as cosmetic as cutting office supplies, hiring freezes fall somewhere between trimming expenses and trimming headcount.

A 2008 Society for Human Resource Management poll found that 48 percent of the organizations surveyed have used hiring freezes as a top way to cut staffing costs. Nearly half (47 percent) of companies polled in a December survey by HR consulting firm Watson Wyatt said they have already instituted hiring freezes, and 18 percent said they will do so within the next 12 months.

Linda Konstan, owner of LMK Associates, a human resources consulting firm in Denver, has noted an increase in clients needing advice on hiring freezes and layoffs. How a hiring freeze is handled depends on what your definition of a hiring freeze is. A hard freeze means all open positions are not being filled for an indeterminate amount of time. A soft one means the company is not filling support or noncritical jobs but is still hiring to fill certain critical positions or departments that are usually revenue-driven.

And a new term has emerged into today’s cost-conscious vernacular—a "smart" freeze where HR and managers evaluate every position to determine the ones the company could not survive without and other hard-to-fill ones and continue to hire for those. Taking the "smart" freeze one step further, some companies are even laying off middling players in these critical positions to fill with top players suddenly on the market.

It’s a strategy John Sullivan is seeing at the San Francisco-based Internet social-networking applications developer Slide, computer giant Hewlett-Packard and other companies he consults with. HR professionals "should know which jobs are most important in your organization. And you should always be replacing [employees in] these jobs with top performers," says Sullivan, Ph.D., founder of John Sullivan & Associates, an HR consulting firm in Pacifica, Calif. "When the CEO calls for a hiring freeze, sit down with the CFO and say, ‘Here are some areas you could cut or stop hiring and there would be no impact.’ "

Typically, the mandate for a hiring freeze comes from the CEO, and it’s up to HR professionals to work with senior managers and the CFO to analyze the positions, communicate the decision and continue to recruit for jobs, even if the company can’t fill them at the moment.

When to Freeze

The University of Kentucky (UK) in Lexington has gone through a few hiring freezes in recent years. The last "smart" freeze began in January 2008 and lasted four to six months, depending on the position.

"The university is state-funded, and budgets are hurting," notes Sarah Bowes, assistant manager of HR employment. "Some positions rely completely on state funding, while others are funded on income." Two hospitals on campus have "income-funded, critical positions, and we had to expedite the hiring of some of those."

The hiring freeze was one of several university cost-containment measures. The HR professionals’ job was to take a snapshot of all open positions and work with department managers to analyze each position and determine those to put on hold, cancel or fill. "We wanted to be very transparent," says Bowes.

Carlsbad, Calif.-based Callaway Golf and Callaway Golf Interactive instituted a soft hiring freeze in the last quarter of 2008. The decision was based on economic indicators on unemployment and lower consumer spending.

Steve Benasso, director of human resources at Callaway, says company officials looked at where they needed to invest resources right now and focused on research and development. "This would also be the wrong time to drastically cut back on our marketing spend or pull back from our retailer partnership programs," which influence product design, he says. "Those are short-term decisions companies will regret when we emerge from this recession."

For Callaway, the decision to impose a hiring freeze came after scaling back hours in the plant. "With salaries representing such a massive portion of fixed costs, it is impossible not to consider their impact," says Benasso. "Once you have scaled back your labor expense on the manufacturing side by reducing hours worked, you have a couple of choices with respect to the fixed expense of exempt employee salaries: You can reduce the number of employees and their respective salaries with a layoff, you can reduce the amount of total salaries with an across-the-board percentage decrease, or you can manage the salary expense through attrition and a hiring freeze."

Callaway managers agreed that the first two approaches would have negative effects on morale. Callaway, which has staved off layoffs so far, will revisit the hiring freeze monthly during 2009, keeping a close watch on industry and economic indicators.

Atlanta-based UPS has been under a soft freeze since early last year by ceasing hiring in management and staff positions while continuing to hire in operations. "We still need to hire package handlers and drivers," says John Saunders, HR manager. "Retirement in our driver ranks is one reason."

HR professionals worked with each functional head at UPS to review all open positions and decide if a certain requisition could be put on hold or eliminated. When a critical position opens up now, the company relies on participants of its cross-training program to fill it. "That sort of bench strength is a competitive advantage," says Saunders.

On deciding when to lift the freeze, Saunders says, "Our management committee considers many factors, the most important of which are package volume levels and the economic forces facing commerce in this country and abroad."

Breaking the Ice

HR professionals should be honest and forthright about how the economy is affecting the organization and communicate to employees why they have to make such decisions.

A December 2008 survey by Watson Wyatt, Communicating to Employees During the Current Financial Crisis, found that companies are doing just that. The survey of 92 employers found that 77 percent have sent out or are planning to send out communication on the impact of the nation’s financial crisis.

"You need to make employees aware of the financial condition of the employer," says Laura Sejen, global director of strategic rewards consulting at Watson Wyatt. "It has to come from the top in order for HR to effectively implement the freeze."

Chilly Days Ahead
Given the recent events in the economy and financial markets, what changes will you make?

Konstan advises making the hiring freeze announcement in a group setting led by the CEO and HR leader with breakout sessions afterward for members of affected departments. "A representative from HR or a senior-level executive should then sit down with the department head and answer employees’ questions and concerns," she says. "The homework has to be done in advance, and the manager has to have thought of how the work is going to get done before this meeting takes place."

Benasso says having the message come from the CEO makes it clear that it’s a business decision, not an HR one. "All employees should read or hear the same message. Communication from department heads runs the risk of employees receiving an inconsistent message tainted by bias."

On the other hand, UPS managers deliver the news. "We ask each functional head to sit down face to face with their people to explain the company’s decision and why it is necessary," says Saunders. "We have an open-door policy that allows all employees to freely ask questions and give input. Our senior and mid-level managers are very visible when an issue like a hiring freeze, or any other issue that affects our people, arises."

At the University of Kentucky, the message came from the president, Lee Todd Jr. "His e-mails went to all the 12,000 full-time employees, and HR quickly followed up with how we were going to address it and how we were going to take the time to make the hiring process more efficient," says Bowes.

UK’s HR professionals communicated to three groups—hiring managers, employees and the community. "HR reached out to hiring managers and sent out frequently asked questions," says Bowes. "We sent e-mail blasts to all employees explaining what was happening so it was clear that we weren’t making rash decisions. And we communicated with the community at large because the university is a major employer in Lexington, and it’s partly their taxpayer funds" supporting positions.

Bowes also recommends communicating directly with candidates. "If a position was put in a holding status," she says, "HR and the hiring manager e-mailed the candidates to let them know that we couldn’t fill the position at this time because of budgetary concerns and when the situation changed, we would let them know."

At the time of the freeze, the HR department had an open position for a work/life manager and decided to put the position on hold. Once the freeze was lifted, HR hired from the original pool of candidates.

Especially in the case of exceptions to the hiring-freeze rule, communication should be clear and consistent to avoid one department head grousing that another head gets open positions filled while his department is working harder with fewer people.