"Implementing a hiring freeze is a knee jerk reaction to performance issues."
At one point or another all businesses of all sizes are bound to suffer through some challenging times. Sales may fall short of expectations, external economic factors may soften end markets, supply chain constraints might hurt product availability or a myriad of other factors will put financial pressure on a firm. How an organization reacts to tough times is a clear indicator of the organization’s long term viability. Too often short term gains lead to long term pains.
The two words that I have found most damaging to a company’s long term viability are “Hiring Freeze”. Implementing a hiring freeze is a knee jerk reaction to performance issues. In most organizations, labor costs are one of the highest cost centers. Implementing a hiring freeze is a quick an easy way to reduce costs. Typically, when a hiring freeze is implemented, it means three things.
- All open requisitions for hire are put on hold
- No new positions can be created
- If turnover occurs the open roles cannot be filled
I believe that there is a problem in the interpretation of the term hiring freeze. Taken literally it means all hiring is frozen. Recruiters are left finding other tasks within an organization to carry out and efforts to create talent pipelines are put on hold. Organizations should never under any circumstances implement hiring freezes. Some organization create caveats, like only revenue generating positions or mission critical positions can be filled. Creating exceptions to the rule only creates further organizational confusion. The adverse impact on an organization is just too great. Consider the following results of a hiring freeze.
- The organization stops advertising positions in the marketplace
- The employment brand becomes tarnished
- Job seekers take to Glassdoor, LinkedIn and other social channels to share the fact that the firm is in a hiring freeze, turning off candidates from having an interest in the company
- Internal managers are forced with make do with the people they have in place
- Moral suffers as does employee engagement
- Mediocre talent within the company believes they have a greater sense of job security
- Poor performers are not dealt with because the removal of a poor performer will result in one less headcount.
- When the hiring freeze is finally lifted the organization has a poor employment brand, not pipeline of talent and a reputation for implementing hiring freezes
The list above is in no way comprehensive, but it does give a sense of the damage that a hiring freeze can cause.
There is a better approach. If an organization reclassifies the action as a “Headcount Freeze” and clearly articulates the rules around the action, the outcome can be quite different. A headcount freeze means that the organization must maintain the current number of full time equivalent (FTE) workers. This somewhat subtle change can have a dramatic philosophical impact. Under a headcount freeze the following activities can and should occur.
- The organization continues to advertise positions in the marketplace but with much more focus on attracting top talent
- The employment brand is elevated because the organization develops a reputation as a tough place to get a job
- Job seekers on social websites chatter about how selective the organization has become
- Internal managers focus on fielding the best team they can. That means top-grading talent. Poor performers are put on alert
- Leaders get creative and look for ways to hire better people that can do the jobs of two mediocre employees
- The leadership encourages managers to deal with poor performers and to seek out better employees
- The organization never loses it focus on hiring top talent, in fact the competency becomes enhanced
As a former leader that I worked with always said using the military term, you want “Fewer soldiers, better fed”. A headcount freeze is an opportunity to increase hiring not freeze it. The problem is that too many organizations mix up the intent versus the impact. It is important to be very clear on the goal. If the goal is to freeze employee expenses (salaries and benefits) at their current level, then a headcount freeze can achieve the same result as a hiring freeze, but in a much more effective manner. In fact, through effective hiring an organization might be able to find a new hire who can do the job of two mediocre people. The net result would be a reduction in headcount and cost savings. Hiring freezes have no upside, but Headcount freezes do. I have written about this approach before in an article about Forwardfilling positions versus backfilling.
Next time your organization faces tough times and human resources or other leaders call for a hiring freeze, push back and ask them to instead implement a headcount freeze. Maybe the chart below can provide the necessary insights.