Writtten by: Rajesh Rajak
Increasing shareholder’s equity is the most important aspect of any organization’s strategy. Sustainable and profitable growth is what every CEO strives to achieve. As businesses grow profitable, they generate more cash which contributes to the shareholder’s equity; hence creating the value for the organization.
Stock market is a platform which provides quick reflection of shareholder’s sentiments. One good or bad news can swing the stock prices. Both internal and external environment contribute to the stock prices movement and it’s valuation each day. While organizations already use stock market driven measurements to pay for various achievements to its employees, perhaps there is more which can be learnt from this volatile platform.
Here are three key strategies which our shareholders use and can be explored by HR to improve it’s workforce, talent and compensation management.
1. Don’t speculate, Invest!
A speculator in a stock market is one who often tries to maximize from the quick or short-term movements in the market. They buy stocks as soon as they get a favorable news and sell it as soon as an unfavorable news crosses their eyes. To some, it might look as a good proposition to act according to the market movement. However, in reality, such positioning often reduces their capital by substantial amount. When you try to buy, and sell too often, you definitely lose on en-cashing the true earning potential of the stock. Interestingly, that was the prime purpose of buying the stock at the first place!
It’s not only about losing on the opportunity on profits; speculators also lose on their current capital in the form of various fees and taxes they pay while buying and selling the stocks. If accounted for correctly, a good portion of an investor’s capital goes in paying the brokerage, taxes and other duties leave apart the time invested to identify, value and buying the stock at right price. Whereas a value investor, one who invests for long-term, would never buy or sell a stock based on it’s temporary movement. They would rather invest in a different tool as against buying a stock if they don’t see a long-term gains out of it. Similarly, they would never sell any of their stocks as long as it promises to deliver on its perceived value hence saving both time and money invested earlier.
Many organizations, just like speculators, hire & fire too quickly as well!
Just like buying a stock, organizations do invest a lot of time and money in identifying, selecting and on-boarding the right talent. This entire process consumes many cost items; like cost of resources involved in hiring, channel fees, candidate travel cost, notice pay, joining bonuses etc. If such resources are fired in short-term, it further pushes organizations to pay for any severance cost and other accumulated benefits cost apart from loss of investment on their training and skill improvement during that short-period.
It’s not only the tangible loss, organizations also lose on their brand value. Candidates often refrain from applying for opportunities in such organizations. This further impacts the organization as its vacancies remain open for longer period and hence increase its opportunity cost.
Organizations must evaluate their resource needs in details and hire only when it’s part of their long-term strategy. To manage temporary flux in the business demand, organizations should plan to hire contingent workers instead. If the demand persists, they can be moved to rolls. If not, they do leave as the contract expires. This could help manage the cost efficiently and improve organization’s brand value. On experimental basis, a task-based assignment with fair reward can be rolled within organization to manage the flux. There is high possibility of other employees picking additional task when they are paid fairly for it.
2. The Recession Whirlwind
We all hate recession, don’t we? It all comes surrounded with uncertainty and fear. Lay-offs become the key word of each business meetings. Saving cost by reducing the number of employees, has been one the quick fixes to organizations financials. Many lose their jobs; for some it’s like end of their professional career!
When the recession hits, stock markets react quicker than organizations do. Stocks fall to lower values day-by-day and are sold off at very cheap price. Many stockholders start selling their stocks to minimize their risk exposure. However, this is the time when a value investor becomes hyper-active. While the markets continue to sell, the value investor starts to buy good stocks. Since, the stock prices are already down, a value investor enjoys getting the best of the stocks at almost risk-free rate!
In such times, like stock markets even job market offers many quality candidates ready to be hired at reasonable salary!
This gives the organizations an opportunity to not only improve on the cost of resources but on quality too. A perfect timing to “replace” your high cost and poor performing employees! The workforce strategy should be made flexible enough to accommodate the pool strength of the organization at such time. Employers can lower the risk and cost of these new hires by modifying the employment contracts and having a longer probation for these new hires. They can be made eligible for certain high-cost benefits only post successful completion of their probationary period.
3. Sell when it’s mature
In a stock market, it is equally or rather more important to know when to sell a share. A value investor will always have fair expectation as to how much a share should perform and regularly estimate when it’s price starts to get overvalued. An overvalued share would soon start to fall and continue to fall until its price gets corrected. It is always a wise step to sell a share when it has reached its maturity and book profits!
Like shares, even employees mature in their profile and soon they start becoming overpriced or in other terms falling outside their pay-range as an outlier. Such situations do need correction!
An ideal solution could be to prepare to move such employees up in their career ladder. However, such is not a possibility in many situations as the employee may already have reached that stage or may not have required competency for next level job.
In all such cases, first and foremost, organization must ensure to communicate the employee about the scope of the role and organization’s affordability for such roles. Being transparent will not only help set long-term expectation of the employee, but could also motivate employee to put more efforts on improving its competencies. It is always advised to freeze the base-pay of the employee. This will help control the total compensation cost and maintain the price vs value balance of the resource. Please note, even when the employee continues to perform, increasing its base pay will only create more and solve less of a problem.
Employers should leverage tools like Lump-sum, task-based incentive or retention bonus to ensure the employee continues to perform and feels valued. As soon as market salaries improve and employee is closer to median of the role; start following the regular pay practice. Waiting for employee’s salary to be corrected at market level is the key to manage such resources.
It is always better to take corrective action in-time than retrenching the employee later due to high-cost!