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How to manage employees during a recession

Understanding how an economic downturn may affect your company can help buffer it against the affects. But how do recessions impact your people. Specifically, how does managing people in a recession differ?

The simple answer is recessions affect everyone differently. The same is true for companies: some things are predictable based on business type and size. A small consulting firm might experience cash flow issues as clients delay paying invoices, while a major retailer may prioritise store closures.

But the main concern for your employees during a recession is losing their job. This concern can have some pretty major impacts on how your people work and experience work.

Since 1900, the US has seen 23 recessions and the UK 9.  There have been 4 global recessions since the end of World War II. And ore are on the horizon. So, over the next few pages, we’ll explore how engagement, performance, and wellbeing are impacted.

Why managers need to re-focus on employee wellbeing during a recession

Engagement, performance, and wellbeing really matter when it comes to having happy, healthy, and productive people. In turn, this helps your business thrive. Even during times of great change and uncertainty.

Employee wellbeing is more than just how happy someone seems. It’s about finding balance. The recipe is simple: Healthy employees = healthy business. Managers, leaders, and HR have a moral responsibility to look after their employees. That starts by having clear strategies for managing people in a recession. Focus must be laser-sharp as employees battle increased stress and worry.

Employee engagement affects just about every aspect of your organisation: profitability, revenue, customer experience, employee turnover, and wellbeing. It creates better processes and enables better management, so your people are happier and more productive. This leads to better morale, more satisfied customers, higher-quality products, less employee turnover, and higher profits.

Employee performance is a life-saver in times of crisis. Whilst measuring productivity is important, understanding performance is even more so when it comes to impacting wider business areas and keeping your people central to planning through tough times.

Employee wellbeing and the bottom line

Jim Hartner, Chief Scientist of Workplace and Wellbeing, Gallup said: "When your employees’ wellbeing is thriving, your organisation directly benefits — they take fewer sick days, deliver higher performance, and have lower rates of burnout and turnover. But when your employees’ wellbeing suffers, so does your organisation’s bottom line."

Unsurprisingly, job losses, financial uncertainty, falling engagement, and increased productivity are a bad recipe for employee wellbeing.  40% of employees reported being impacted by burnout during the 2008 Great Recession.

A recession is bad news for financial wellbeing which can directly cause stress and poor mental health. Gym memberships get cancelled. People switch to cheaper, processed foods and in some instances meals are skipped. None of which is great for physical wellbeing. And social spending declines, impacting the final key area of wellbeing.

The key to supporting wellbeing isn’t away days, yoga, and time off. These add to your people’s plate. Get the strategic things right and the nice-to-haves can follow. How you train your managers to be effective and resilient in a recession is important.

Gallup’s 2010 State of the Global Workplace report showed a significant increase in employees reporting wellbeing concerns. Unsurprisingly financial and mental wellbeing were top of the list.

Employee engagement during a recession

As you might expect, companies whose employees are highly engaged before a recession are better equipped to weather the storm. That’s because their people feel connected to the purpose and are happy to go the extra mile – often call discretionary effort. They pull together, roll up their sleeves to respond to market turmoil.

Company culture plays a big part here. Especially when it comes to managing people in a recession through transparency. Transparency goes far beyond sharing company financial, ethical, and operational information. It also refers to employers and employees being open with each other.

It builds the necessary trust, understanding and confidence they need with you to help navigate any crisis. Transparency allows your people to feel connected to your business and the events impacting it. It empowers people to do more.

A lack of transparency is poison to company culture

Low transparency leads to cynical, unengaged, and disloyal employees who lack the motivation, autonomy, or purpose to help you weather the storm. 86% of employees feel a lack of effective and open communication is the main cause of workplace issues.

Potential job losses and wage stagnation are strong detractors for employee engagement.  A lack of certainty, particularly when it comes to personal finances leads to increased levels of stress and anxiety. If work is making you stressed, then it stands to reason your engagement will suffer, right? Being open and honest with your people will help to avoid some of this.

Engagement dropped in 66% of company leaders questioned after the 2008 Great Recession. And more than half of those fell by more than 2% - indicating a significant shift negative shift in employee engagement because of the recession.

For companies whose engagement levels were already on the low end, this will have had a big impact on morale, motivation, and performance.

Invest in understanding your current levels of employee engagement now. You’ll know where you stand and can take appropriate actions before tougher times hit.

Check out our chat with Chief People Officer at FSCS, David Blackburn. He explains how they were able to improve employee engagement to record levels during the pandemic.

Employee performance during a recession

Evidence suggests that performance increases during a recession. Perhaps due to not wanting to be in the firing line for potential job losses? During the 2008 Great Recession, aggregate hours worked fell 10%. Yet output only dropped by 7.6%, suggesting output per worker increased.

Output and performance are different though.

Stanford University carried out a study in 2016. They wanted to see if the difference in hours and output was due to employees working harder. Or, if less productive workers losing their jobs meant the average output per worker increased. They found that 85% of that productivity increase was due to improved levels of employee performance.

Higher performance isn’t always healthy. And that's why proper manager training is critical - especially for managing people in a recession. It may well be a trigger for burnout. Here are the 7 common signs for your managers to look out for:

  1. Emotional, mental, and physical exhaustion
  2. Disengagement
  3. Increased absenteeism
  4. Isolation
  5. Higher sensitivity to feedback
  6. Emergence of physical symptoms
  7. Decreased productivity

What managers can do to support employees during a recession

Managing people in a recession is different. It requires fast decision making and utter clarity. Here's how you can be a better manager during tough times.

1. Build resilience

When people are happy and healthy, they’re more likely to be engaged. And engaged people perform better. So, when it comes to tough times, prevention is always better than a cure. Protecting your people during a recession means taking care of their wellbeing, which leads to higher engagement and better performance. Support your people and they will support you. There are 8 steps to building a resilient team.

  1. Understand the basic elements of resilience at work
  2. Understand strengths and develop weaker traits
  3. Improve emotional wellbeing for better resilience at work
  4. Promote an inner drive
  5. Resilience at work needs you to be future focused
  6. Develop healthy relationships
  7. Support physical wellbeing
  8. Provide personal and professional development

2. Be open and clear during tough times

During change, communication is key to supporting your people. Every good leader knows the importance of overcommunicating during a crisis. Urgency, transparency, and empathy help people adjust to the constantly changing conditions tough times bring.

Open, honest, and regular two-way feedback between managers and employees is one of the most effective tools for building and maintaining employee engagement. Gallup report more than 90% of highly engaged businesses put communication in their top three priorities. 81% have it in their top two.

3. Set goals for clarity, focus, and alignment

It may seem odd but setting clear goals will keep your entire organisation on track. Everyone is focused on the same destination, just via different routes.

Setting goals during a crisis helps to motivate and align individual, team, and department work. In uncertain times, collaborating to set goals can help to ease stress and provide much needed support and clarity. Goals need regular reviews as priorities adapt to the situation. An out of date goal can have a negative impact on engagement, performance, and wellbeing.

This article is taken from our latest best practice guide: Managing People in Tough Times. Get your free download by completing the form below.