Dr. John Sullivan
Hiring freezes are common during downturns. However, they are often an economic mistake that hurts revenue generation and product development. Their “unintended consequences” are seldom identified, tracked, or quantified in dollars by talent leadership.
Most Freeze First And Think Later
Whenever there is a significant business downturn, one of the first knee-jerk reactions by executives is to institute a hiring freeze. A hiring freeze is a period of time when there are no active recruiting searches or permanent employee hiring across-the-board. If your organization has already instituted a hiring freeze, or if it is considering this option, it’s critical that your decision-makers fully understand the many problems associated with a poorly designed hiring freeze. The top 10 most impactful problems are listed below.
The Top 10 Problems Associated With Hiring Freezes
- The loss of current sales or revenue. Across-the-board freezes are comprehensive, so they also include revenue jobs. However, revenue-generating employees are not just an “expense item.” In fact, they are a contributing asset. When critical revenue-generating and revenue impact positions go unfilled, there is a lost opportunity to generate revenue every day that the position remains vacant. It’s also important to note that vacancies in the support personnel for revenue-generating positions will also indirectly reduce revenue.
Recommended action – prioritize your revenue-generating and high revenue impact jobs and exempt them from any freeze.
- Limiting Product Development restricts future revenue. Even one key vacancy in a product development team can slow or even stop new product development. Without new high-margin products coming off the line, your company won’t be able to significantly increase revenue after the downturn is over. A hiring freeze also keeps you from hiring additional innovators, which may be abundant during an economic downturn.
Recommended action – prioritize product development and jobs that impact development. And then automatically exempt the most important ones from the hiring freeze.
- An untargeted freeze limits expansion in growing business units. Within most large organizations, even during tough times, some business units are growing, while others are shrinking. By freezing hiring “across the board,” you negatively impact your rapid growth divisions. This limits their ability to continue to grow. In global firms, some geographic regions are likely to be growing despite the downturn, and an overall freeze will threaten your competitive position.
Recommended action – identify the rapid growth of business units and regions and exempt them from the overall freeze.
- Freezes hurt customer service and your product brand image. Understaffing due to unfilled vacancies can stretch your customer service employees. This means that other employees must now do double duty because replacements can’t be hired. This may also impact service quality and send a message to your customers that your firm is slipping as overworked employees sidestep process elements and cut corners. Understaffing can also negatively impact your product brand, online image, and future sales.
Recommended action – prioritize the highest impact customer service jobs and make sure that the team is fully staffed.
- Large-scale team departures can damage an entire business process. In cases where a significant percentage of a process team leaves. A hiring freeze may literally cripple that process as well as related interdependent processes.
Recommended action – a hiring freeze should be lifted for a process team whenever the percentage of team vacancies rises above a tolerable level.
- Freezes increase frustrated top employee turnover. The understaffing, caused by a hiring freeze, frustrates top performers. An understaffed team may mean reduced chances for a top performer to get a promotion or a bonus. Their frustration may cause them to rethink their loyalty and to begin to actively seek new opportunities outside your firm.
Recommended action – work closely with individual regrettable turnover employees to minimize the impact that team understaffing has on their possible reasons for leaving.
- Hiring freezes often mean keeping a team’s deadwood. Because managers may not be able to fill any position vacated by a forced out weak employee. A hiring freeze may indirectly cause individual managers to slow down or even cease their efforts to get rid of their deadwood employees. Having to continually carry these low performers leads to lower productivity overall, but also weakens your managers by not forcing them to confront low performers. Carrying deadwood employees will also frustrate top performers on the team.
Recommended action – immediately after a bottom performer leaves, be sure to unfreeze their position on a team.
- Hiring freezes negatively impact new technology implementations. Even if you have the budget for new technology, a hiring freeze will directly limit your ability to attract new technologists to implement these new technologies. This understaffing will directly slow your technology implementation efforts.
Recommended action – prioritize the jobs related to implementing critical new technology and exempt them from freezes.
- Freezes encourage your competitors. Hiring freezes are visible to outsiders and the news of their existence will spread rapidly. These freezes send a message to your competitors that you are “weak” and struggling. This may cause them to increase their efforts to recruit away your top employees and more often than not, your customers.
Recommended action – simply avoid across-the-board hiring freezes and the negative publicity associated with them. Instead, institute narrow targeted freezes and make them less visible.
- Hiring freezes can negatively impact your stock price. Because of the downturn, your company stock price is likely already lower. A freeze sends a message to analysts, customers, suppliers, and competitors that your firm is not in a growth mode. Or that the company is in trouble, which could further hurt your stock price.
Recommended action – work with PR and corporate to minimize any negative publicity related to hiring freezes. Also, reinforce your image by replacing key executives immediately.
Additional Freeze Related Problems That Shouldn’t Be Ignored
- “Not counted as headcount” replacements may be more expensive. Few hiring freezes end up saving money because budgeted “headcount employees” are often just replaced with consultants, temps, interns, and other “off the book” spending. In some cases, these alternative “not counted as headcount” workers end up being more expensive than regular employees. Leading to a situation where overall “labor costs” don’t go down at all. Facing employee shortages, some managers increase the use of overtime to get the work done, but at time and a half, this solution is relatively expensive. So, continually calculate the cost of a vacancy, as well as the costs of any substitute labor to maximize your labor ROI.
- The fear of an upcoming freeze made by itself causes damage. Rumors of upcoming hiring freezes can make managers paranoid. As a result, they will often do “panic” hiring when they hear a rumor. During this rush to beat a freeze, they may hire low-quality people quickly to avoid losing their positions permanently.
- Hiring freezes encourage internal politics. Most across-the-board freezes are not actually total freezes. Executives almost always leave opportunities for “exceptions.” As a result, they don’t really “stop” hiring, they just slow requisition approvals. By making it more painful and more political to get approvals, a large amount of a manager’s (and HR’s) time is wasted using politics to “get around” these freezes and justifying each exception.
- A long-term freeze may weaken your future recruiting capability. Extended hiring freezes over time invariably mean recruiter layoffs. This loss of recruiting capability can impact your upcoming business turnaround. Because not hiring for long periods of time will cause your managers to become rusty. This lack of practice and no longer paying attention to the talent market and to changing top candidate expectations will limit a manager’s future recruiting capabilities once the upturn begins.
- Across-the-board freezes may damage HR’s image. By treating all jobs equally, HR is sending a negative message to other managers that it is not businesslike and decisive. Or, that it doesn’t understand business impacts and that it is afraid to differentiate based on them.
To avoid most problems associated with a hiring freeze, HR must work with the CFO to identify and then prioritize the jobs that have the largest negative business impacts when they are vacant for a long period of time. If you want to maximize your business results, the business impact of each job must be calculated and weighed relative to others before a hiring freeze is placed upon it. Key individual employees (regardless of their job) must also be identified and prioritized. So that if they unexpectedly leave, they can be immediately replaced.
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