Slimming down: pay vs people

The Wall Street Journal (subscription required) has an article that suggests a more humane way of dealing with expense cuts needed to cope with the recession – trimming salaries as opposed to people. The Journal article quotes the example of Southwest Airlines who in the last downturn "decided not to make any layoffs. Instead, the company cut bonuses, profit-sharing payments and salaries for executives, and also froze managerial pay. This let Southwest rebound strongly as the economy improved". Further, the article correctly points out that "Southwest's 'cut pay rather than people' strategy provides a lesson for the current economic downturn: When employees are carefully selected and trained, work in self-managed teams, are customer-oriented and are highly loyal and committed to their organizations, they should be viewed as indispensable assets. They are integral to the process of rebounding from a downturn".

Hotel companies rarely need lessons from airlines, as instead of being paragons for service standards, they are arguably the worst exemplars for customer retention strategies. Southwest, however, is and always has been an exception. Yet, some the heavy hitters in the hospitality space continue to embark on time-worn and probably inadequate if not incorrect strategies of laying off staff, managerial and line, reflexively as another article in the Journal notes.

However, as this article in the Chicago Tribune notes, outside both the airline and hotel industry, others seem to be picking up on the idea realizing that, apart from high training costs involved with re-hiring whenever the economy picks up, the loss of goodwill and morale both with remaining employees and customers, past, present and future, are all of greater consequence than the difference to the bottom line, particularly if the company's survival is not at issue.

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.