At a glance
- Economic downturns can leave staff feeling worse off and demotivated at work.
- It’s important to be open with employees about your firm’s situation and encourage them to share ideas about what would relieve the pressure on them.
- If pay rises aren’t an option, there are other ways to keep your workforce feeling positive and engaged. These could include non-financial benefits such as wellbeing days, team outings and public recognition for those who go above and beyond.
As a Small or Medium-Sized Enterprise (SME) owner, it’s vital to understand how tough economic times can affect team morale and how to respond. With household budgets stretched, employees may feel deflated that their income is worth less in real terms, and they may worry about their jobs or feel under pressure to boost productivity at work.
Economic downturns cause uncertainty, which leads to fear of financial hardship. If not handled sensitively, this can undermine psychological safety, which workers need to remain content, motivated and productive. Psychological safety includes a feeling that colleagues and management support and listen to staff and mitigate problems where possible.
Dr Susan Doering, Executive Coach and Trainer, recommends SME owners address these psychological issues head-on to avoid staff losing motivation or even resigning. “Staff pick up on your mood, so stay calm, positive, energised and focused,” she says. “A culture of closed doors and secrecy is bad for morale. Be transparent about the firm’s situation. If cuts are necessary, be clear about what will happen and when.”
Make this a two-way conversation. For example, ask your staff what would motivate them to stay and keep giving their best – it may not be about pay. “Encourage ideas about how to relieve the pressure,” adds Susan. “This creates a sense of motivation, togetherness and loyalty.”
How to manage employees in a recession
If your company can’t match inflation with pay, it’s critical to communicate why to staff. Start by explaining that UK inflation is around 10%, so if your margin is 10% or less, increasing pay by that amount could threaten the company’s existence.
Steve Blue is CEO of safety-equipment manufacturer Miller Ingenuity and author of five books, including Metamorphosis: From Rust Belt to High Tech in a 21st Century World. He recommends communicating to employees that the company has no control over inflation, unlike other factors such as the cost of sales. Only the government can control inflation with monetary policy.
“Tell people everything you can about what’s happening, why and what you’re doing to make things better,” says Steve. “Be honest to the bone, but give people reasons for hope and optimism. Employees don’t expect you to be perfect, but they have a right to expect openness and candour.”
Katy Foster, Senior HR Consultant at Cream HR, agrees reasons for hope are crucial. “A recession can seem long term or even never-ending,” she says. “Even if you intend to offer pay rises, some employees may assume the worst, leading to demotivation and even resignation.
“If money is tight, be open and honest. But reassure them this isn’t forever – the recession will end – and give a date for review so they don’t think they have to wait another year for a pay rise. Also try to see it as a development stage that can bring your team closer and make you more competitive in future.”
Another way to maintain morale is to show employees you care about their physical and mental wellbeing. For example, consider creating a working group to explore alternative options for supporting employees through the downturn, including non-financial benefits such as wellbeing days, extra leave or even a four-day week.
“There are many ways to support your teams without automatic pay rises, but it may require creative thinking,” says Katy.
How can a leader motivate their team: The Wilful Group
Narda Shirley and Rebecca Oatley, co-founders of PR firm The Wilful Group, have used a combination of measures at their firm. “This could be the first recession younger team members are experiencing, and all the economic doom and gloom combined with brakes on pay rises and extra productivity focus can be daunting,” says Narda.
She recommends communicating the bigger picture. If you’ve experienced a previous recession, talk about that and what you learnt and are acting on. In the short term, you may need to focus on maintaining a healthy balance sheet and cash flow. That might mean some short-term pain and scaling back, but it keeps the business in good shape, ready to accelerate out of the recession.
“Or it might mean shifting focus from attracting new clients towards retention and satisfaction, which we have done at Wilful,” says Narda. “But people need to know there’s a plan. So, keep communicating thoughtfully and recognise that people have different levels of understanding. Ensure you explain what it means for them and how you need them to contribute to the solution.”
A higher pay rise may be justified for some key individuals, but weigh the opportunity cost for each case, says Narda. “Ask yourself how long it might take to replace them if they felt forced to look elsewhere or if financial worries meant they missed work through anxiety or depression,” she says.
Don’t make the mistake of thinking you can buy long-term loyalty with a one-off gesture. But a small amount of financial help can go a long way towards boosting morale. When the first big energy price rises kicked in, The Wilful Group made one-off payments of £500 to help all employees with increased outgoings.
“We received great feedback on that in staff surveys,” says Rebecca. “Beyond that, when growth is hard to come by and bonus cash is tight, celebrating every win is more important than ever. Public recognition and thanks for people who go above and beyond bring a huge morale boost. Give your team leads a discretionary budget for on-the-spot thank-yous – small gestures such as cinema tickets can also increase morale.”
Rebecca adds that team outings can be another effective way to build motivation. “We headed to an ancient forest with regenerative business coach Giles Hutchins, which helped build bonds and perspective,” she says. “Trees and forest bathing are known for their restorative powers. Just walking and talking in a green space can unlock a different conversation from those you typically have at work.”
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If you’re looking for ways to motivate and retain staff in your business, we can help. Contact us today for information and advice.
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.
SJP Approved 13/04/2023