What is hiring freeze?
A hiring freeze occurs when an employer temporarily prohibits the hiring of non - core employees in an attempt to reduce expenses. This typically occurs when a company is experiencing financial difficulties. Management may also implement a hiring freeze in times of a recession or other economic or market duress that may result in the company realising production overcapacity, where a company produces more than the demand for a product or service.
Hiring freezes may be short-term or long-term, however, usually, the main aim is to escape dismissing employees. Hiring freezes can be achieved by not replacing employees that would have left the company, whilst ensuring that no new positions are created.
Advantages & Disadvantages of Hiring Freezes
1. Restore Financial Stability
A hiring freeze would identify and do with unnecessary activities. Cutting such costs could mean that financial stability will be restored.
2. Improve Efficiency
With hiring freezes, management may be able to restructure workgroups and consolidate employees to create greater efficiency in producing the essential goods and services for its customers.
3. Improve teamwork
As the team is restricted from getting bigger, the management would need to work on the existing team by focusing on training and incentive programs. This could create loyalty, motivation and empowers them directly impacting on productivity. With the opening up of various communication channels, employees help to solve problems that may arise.
4. Re-evaluate business:
It is a chance for the business to re-look at its operations and strategies for growth. Re-evaluating helps the company to rewrite its business plans to suit the market trends. This helps the business to review and update its policies, procedure of operation and bring changes. By doing so, it allows the company to position itself better in the competitive world of business for the future.
5. Bringing to a manageable size:
Downsizing is actually to reduce the operations and size of the department so that it is manageable. It helps the business to serve customers efficiently as the situation is manageable. When the situation is manageable the profit is good.
6. Security to existing employees
While a hiring freeze usually indicates financial problems within a company, it’s not always a bad thing for employees. It could instead indicate to employees that the company will not be bringing in any new hires, however, their jobs are safe.
1. Losing employees
As the aim is mainly to minimize manpower, some of the roles may be combined to reduce inefficiency. If there is an integration of roles and functions, some of the workers may end up being let go.
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2. Bad Publicity
Some companies esp creditors, may become reluctant in doing business with a company undertaking a hiring freeze as it is usually associated with financial hardship. Even if the hiring freeze has not been brought about by financial issues, the company brand and overall reputation will likely be adversely affected.
3. Affects profitability
While the objective is usually to reduce costs, a hiring freeze may not affect the company's profitability in the intended way. Productivity is unlikely to increase by much and in an environment where the company's business activity is worsening, it is common to see a company's profitability take a hit.
4. Fewer opportunities for development
A hiring freeze may signal to employees that there is no chance of promotion. This is because if an employee gets promoted, the company may not be able to replace them as they cannot hire new employees. For ambitious employees who would like to progress in their career, this may be a deal-breaker and may seek a way out of the company.
5. Responsibilities Burdening:
Employees at the company will be burdened with extra obligations and expectations that were supposed to have been covered by the new hires. This unideal situation may result in employees becoming stressed and/or disengaged.
Workarounds During a Hiring Freeze
Even during a hiring freeze, smart employers continue to strategically hire in areas where skills and talent are essential to ensure the successful run of the business, and in areas that generate revenue. Often, these essential employees are consultants or freelancers who work hourly, daily, or weekly and are not paid benefits and have short-term contracts.
But, employers do hire essential employees during a hiring freeze. For example, if you are a software development firm, you will replace a project leader who is developing the next iteration of your key product. That individual's staff, because of the learning curve to bring a new developer up to speed might also be deemed essential. In certain situations, investing in the training of a short term contractor won't work for the long term.
Hiring freezes by top companies
In May 2020, Uber instituted a hiring freeze as a cost-containment measure due to the Covid-19 pandemic that has ravaged economies. Uber was very active when it came to communicating with their employees. An email sent to the employees by Uber Chief People Officer Nikki Krishnamurthy said, in part:
"The COVID-19 crisis continues to evolve rapidly, so ELT has spent a lot of time over the last few days developing plans for this difficult period, for Uber and for the world. Part of that means anticipating potential impacts on our business, and taking difficult but decisive steps now to get ahead of them. After several discussions, we have decided to pause net new hiring company-wide through May 31st, when we will re-evaluate and either stay the course or restart recruiting."
According to Julie Bort from the Business Insider, employees were expectedly nervous for weeks that the company was gearing up for another big restructuring, including layoffs. During an all-hands meeting, an employee asked Krishnamurthy about layoffs, but she assured them that the company had no plans for layoffs at the time. Allowing employees to ask questions and answer them goes a long way in calming nerves. The transparency brings in more co-operation within the group and within the team.
In April 2020, Google cut its marketing budget by as much as half for the remainder of 2020 and implemented hiring freezes, according to CNBC. The company has told marketing employees that it is slashing budgets and introduced a hiring freeze for both full-time and contract employees. "There are budget cuts and hiring freezes happening across marketing and across Google," read one message sent from a global director to employees, according to CNBC. "We, along with the rest of marketing, have been asked to cut our budget by about half for H2."
In response to the news of the hiring freeze, Google shares dropped nearly 2%, thereby affirming the effects of public perception in light of hiring freeze plans. The 2% drop in share price shows that investor opinion changed and Google shares began to be associated with greater uncertainty.
A Google spokesperson added that the company was slowing its hiring, but said a freeze wasn't happening across the entire company. This shows that hiring freezes can target a specific department or area.
Nyasha Mukechi is a Business Consultant at Industrial Psychology Consultants (Pvt.) Ltd; a management and human resources consulting firm.
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