Commentary: The brewing concern over jobs and salaries as COVID-19 persists
Saving jobs is key priority in this COVID-19 downturn - and businesses can afford to be more sensitive to doing so, says ManpowerGroup’s Linda Teo.
SINGAPORE: Against a backdrop of about 18,589 deaths and 415,000 infections, the COVID-19 outbreak is bringing the world to its knees. Globally, production lines and supply chains have been disrupted, stock markets are bearing down and businesses are buckling under.
Singapore is no exception. We are seeing the effects of the COVID-19 outbreak just three months from when it first began in Wuhan last December. Prime Minister Lee Hsien Loong has said “definitely our economy will take a hit”. Economists are warning of a recession.
On Thursday (Mar 26), the Ministry of Trade and Industry released data showing that for the first three months of this year, Singapore's economy contracted by 10.6 per cent from the previous quarter. The Ministry downgraded Singapore's growth forecast for 2020 to between -4 per cent and -1 per cent.
The Government has offered not one but two rescue packages. The first - the S$4 billion Stabilisation and Support Package delivered during Budget 2020 on Feb 18 - aims to help workers stay employed through wage support and reskilling.
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It will also support firms with cash flow and operating costs. The second, announced on Thursday, is a S$48 billion Resilience Budget to save jobs, help households cope with immediate costs and assist companies with cost and credit pressures. .
But how much will the rescue packages help to save jobs?
SALARY CUTS HAVE STARTED
Consumer confidence has impacted discretionary spending. Fears of a disease spread have kept more people indoors, though there are some who spend through digital transactions. Also, workers spend less, fearing a wage cut or layoff. Many industries are thus affected by this drop in consumer spending.
The aviation and tourism sectors have already been hit hard. Given global travel bans, airlines are seeing flight bookings cancelled or postponed.
According to reports, Singapore is bracing for a drop of between 25 and 30 per cent to tourist arrivals this year. Other sectors that are feeling the heat: Retail, food and point-to-point transport services.
This was a Mar 22 announcement that the country will not allow short-term visitors to enter or transit through the country in view of the heightened risk of importation of COVID-19 cases. With tourist arrivals down to near-zero for the near future, the spill-over effect will reverberate through many other sectors of the economy.
Big players have already announced pay cuts of between five and 15 per cent for senior management. Earlier this week, Singapore Airlines CEO Goh Choon Phong declared in a memo to staff that he will be taking a cut of 30 per cent from his base salary while also increasing pay cuts for other senior management and varying amounts of no-pay leave for staff.
Other big companies are also exploring the following options: bonus cuts, wage and hiring freezes, and voluntary no-pay leave. These could be a way to shore up their brand names and to maintain shareholder value.
Unlike big, public-listed organisations, smaller firms usually do not have share market values to worry about. But they have another big woe — cash flow.
The ability to maintain a healthy cash flow will weigh heavily on bosses’ minds in the next quarter or two.
RETRENCHMENTS MAY INEVITABLY COME
Manpower costs can be substantially high for firms, depending on the nature of business.
According to the Ministry of Trade and Industry's 2018 Economic Survey of Singapore, in the services sector, labour costs account for 13 per cent of business costs for firms in the transportation and storage sector and around 40 per cent or more for firms in labour-intensive sectors such as accommodation, food services and retail.
Indeed, for the food sector, labour costs appear to be a comparatively high proportion of their business costs. Food retailers, like Sheng Siong and NTUC Fairprice for example, see staff costs account for as much as 42 per cent of their operating expenditure, data released by DBS in 2019 showed. For food services outlets like BreadTalk, Koufu and Old Chang Kee, this is even higher at about 44 per cent.
Not surprisingly then, manpower costs can be a target for cuts when companies head into a downturn. Initially, as companies assess jobs and salaries over this period, they are likely to first freeze hiring, then bonuses and lastly wages.
People may be asked to go on shorter work weeks. These belt-tightening measures will mean cost savings in the near term — and less likelihood of rampant layoffs or now.
But where the outbreak will likely last beyond six months,, what would be the job-and-salary game plan then? Certainly, with limited savings, disrupted supplies and creditors at the door, small firms may have to do the inevitable — let people go.
A business that still has recurrent revenue through subscription or membership fees, such as gyms, may still have earnings locked in for a few months. Such companies stand a better chance of positive cash flow and staff retention, even as they may request for their staff to go on no-pay leave.
On the other hand, businesses dependent on staying open to generate revenue like food and beverage outlets, engage in transactions that are upfront — paid via cash or card. Fewer diners means an immediate negative impact to cash flow. As business shrinks, inevitably to survive, they may have to cut head count.
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The Resilience Budget delivered on Thursday by DPM Heng Swee Keat, may bring some relief in the form of the Government's co-funding 25 per cent of wages for local workers until the end of the year. This increases to 50 per cent for workers in the food services sector and 75 per cent for those in aviation and tourism. It will go a long way in helping companies manage their cost pressures and thus jobs.
MITIGATE THE FALL OUT
Despite this Resilience Budget to alleviate cost pressures, and although companies in Singapore have been doing really well in holding out against cutting staff, certain sectors and businesses may have to reduce headcount eventually, as the pandemic continues to put pressures on businesses.
COVID-19 has starved many companies that depend on retail traffic from customers as more people are staying at home.
But laying off staff should really come last for companies. There are still opportunities for them to work on other measures that tackle their short-term balance sheet challenges but also strengthen their longer-term standing.
Firstly, business should realign business strategies both for the immediate and the longer-term. For instance, a clothing retailer could slash prices of items — even in-season wear. Businesses should use sales earnings for cash flow. Businesses should also look at clearing inventory and reassess how much stock they need for the next season.
Companies should also look to investing in new revenue streams — e-commerce, for instance. Tuition schools could put in place or bone up infrastructure for digital classrooms for instance.
Secondly, businesses must look past the crisis. They should review business processes, decentralise supply sources and plug into myriad schemes in place to refresh the skills of employees in their 40s and 50s, arguably those who will be the hardest hit in bad times.
Finally, employers should not consider layoffs as the first line of defence. They will find it harder to scale up — rehire good talent — in good times.
Rather, it is crucial for companies to protect their employees. Look to a wage freeze or shorter work week first before pay cuts or layoffs. Or, redesign a job — say, job-sharing at pro-rated pay — to save two valued employees.
This is also the time for a cross-functional team — business, human resources and management — to assess how best to retain talent while belt-tightening, and how to tap on the two rescue packages to buffer operation costs.
Businesses should also be sensitive in communicating bad news. If they have to cut employee salaries, assess if they can also dish out an assurance of reinnstatements or back-pay when the business picks up again. Will people have to take no-pay leave? Assure them that they have jobs to return to.
This is of course if the situation returns to business as usual once COVID-19 tapers out.
Linda Teo is Country Manager, ManpowerGroup Singapore.