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You’re going to have to cut costs: here’s how one CEO is doing it

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Gerhard Papenfus, CEO of the National Employer’s Association of SA (Neasa) sent out the following email to members. It deals with planning in the time of Coronavirus. Hard decisions are going to have to be made, and costs must be cut. Here’s what it says:

At the time of being confronted with the unprecedented Covid-19 challenge, we were already in a socio-economic predicament. Every socio-economic complexity which existed before Covid-19, is and will in times ahead be exponentially compounded.
 
In the days, weeks and months ahead, business leaders will have to make tough, but crucially necessary decisions. Any decision affecting staff is always a business leader’s most difficult decision. Consequently, as a result of the emotional element involved in decisions of this nature, it is often delayed, which may force employers into rushed decisions. This scenario should be avoided.
 
Depending on the duration of the lockdown, it is estimated that South Africa’s GDP may decline between 8 and 20%, with a corresponding increase in unemployment of between 5 and 15%. Keep in mind that our official unemployment rate was already a staggering 29% in February 2020. The actual unemployment rate is probably 5-10% higher.
 
This morning, I read a communique by a CEO in which he unveiled stringent measures to dramatically cut costs and manage the liquidity of his company during these unprecedented times. In a letter to his staff he stated that management’s key focus is to manage the business in an environment where they can expect a substantial drop in revenue. He also anticipated a drop in cash receivables from their clients and significant future uncertainty regarding the full impact of COVID-19 on the economy and the business.
 
He continued to provide a list of reviews and measures which his company will implement with immediate effect:

  • a review of all fixed-term and consultant contracts across the group to assess whether these skills are required;
  • the assessment of group policy regarding the employment of people over 65;
  • a review of variable payment elements as it relates to reimbursement of travel, overtime and standby;
  • a review and reduction of discretionary spend, which includes travel, entertainment, events and property rental expenses;
  • a payday move, where the pay date for April will move from 25 April to 30 April and will remain at the Iast day of the month until formally notified otherwise;
  • temporary implementation of short-time, which is a 4-day work week for a period of two months with immediate effect. This also means a salary cut of around 20%;
  • not honouring all reimbursable expense claims incurred after 1 April 2020. This includes expenses that relate to petrol cards, company credit cards, entertainment expenditure and any other claims;
  • engaging with pension and provident funds on a payment holiday during this period;
  • applying to the UIF and the COVID-19 Temporary Employer-Employee Relief Scheme (COVID-19 TERS) for interim relief; and
  • assisting employees with their creditors.

The measures contemplated by this particular business are presented to employers nationally to stimulate their ideas on this matter. This letter also illustrates the gravity of the situation business in general finds itself.
 
In contemplating any potential measures to relieve the strain on business, we suggest that employees, potentially being affected, be provided with an opportunity to make suggestions in this regard.
 
The burden of the unprecedented situation must be shared by government (I believe government is doing what it can within the context of fiscal constraints), employers and employees. After balancing all interests, business must be in the position to continue operations, and grow, till when things slowly return to the new normal.