CHAPTER 10 ________________________________
Creating a Healthy Workplace Culture in Hard Times: Managing Workers through Deficits and Downturns in Austin, Texas

In less than ten years, our economy has produced two teeth-rattling recessions: the first beginning in 2002 after September 11, 2001, and then again in 2008. States, cities, counties, and school districts are trying to manage through record shortfalls while squeezed between soaring costs for health care and pensions and a growing opposition to tax increases. Though much has been written about the financial strategies for dealing with budget deficits, there has been little examination of how to manage—and, in fact, partner with—employees through the layoffs, freezes, and furloughs that accompany closing facilities and cutting services. Executing the science of organizational reductions and applying the art and heart of people management are very different efforts.

In a recession, employees are placed under enormous personal and professional stress. Long-established approaches to balancing a budget during a downturn leave government employees working harder—for less—with fewer resources, all while fearing the loss of their livelihood. During hard times, the brass ring for public managers is maintaining a workforce with high morale and organizational loyalty. This involves creating a working partnership between employees and management for dealing with the economic downturn. The success of such a partnership depends on strong two-way communication and allowing employees to become an integral part of the decision-making and organizational change that impact their jobs.

Backdrop

Austin, Texas, is the 15th largest city in the nation, having doubled in size approximately every 20 years since 1885. By the 1990s, Austin’s economy was red hot. Extremely rapid growth in population and overall employment, combined with the maturation of the region’s technology sector, created double-digit income growth. After Austin’s phenomenal economic growth in the nineties, the fiscal decline at the beginning of the next decade hit the city particularly hard, proving that the higher you fly, the farther you can fall. The decline left Austin’s recently passed general government budget, as well as the city’s three-year financial forecast, deeply and structurally imbalanced. With a budget of $466 million and 5,047 employees, Austin was spending more than it was going to make.

To balance the fiscal year 2001-02 budget, the city initiated a hiring freeze and extensive cost-containment measures to cut expenditures by $34 million. In the following three years, Austin cut general fund expenditures an additional $89 million and eliminated 665 positions to achieve structural balance, meaning that ongoing expenditures matched ongoing revenue.

What Austin and other cities went through in the first half of this decade is again being played out in private- and public-sector organizations across the nation. Surveying a cross-section of U.S. employers in May 2009 showed that three-quarters of employers have taken at least one step to cut labor and operational costs in the past year. Sixty-four percent of those surveyed reported layoffs.

Cuts such as these represent a big challenge for public managers. Done wrong, reducing a budget deficit can leave a workforce disengaged, depressed, and angry. Done well, the end result is not just a balanced budget, but the retention of a motivated and loyal workforce that repositions an organization for a sustainable future.

It Starts at the Top

Fishing lore would have you believe that fish rot from the head down. I don’t know if this is true of fish, but I do know that it is true in governmental downsizing. Managing the work environment, particularly during a recession, is a top-down job. Employees are looking up, watching management’s every move, to gauge how they will be treated both during and after downsizing. An organization will fail or succeed based on how the top of the organization responds, and is perceived to respond, by employees. Don’t underestimate a public manager’s role in making sure a positive corporate culture emerges from the turmoil of downsizing. A healthy workplace culture can be built only from the top down in hard times.

The Three Cs

During a financial crisis, many managers automatically go into command and control mode, unintentionally treating their employees like children. Rather than fully engaging employees, they hold back information or dribble it out and sugarcoat it. Employees are cut out of decision-making. They are left on the sidelines, helplessly watching supervisors, human resources representatives, and lawyers scamper to one clandestine meeting after another. To survive a financial crisis with employee morale and productivity intact, it is critical for organizations to respect employees’ dignity throughout the process. For a public manager, the “brass ring” is forging an effective partnership with employees. Austin successfully forged that partnership by paying attention to the three Cs: communication, control, and change.

Communication

In rough times, you can’t communicate too much, but you can communicate unsuccessfully. Following conventional human resource and legal theory regarding conveying bad news to employees can lead to announcing personnel actions with little notice and making surprise layoffs. This is one of the biggest mistakes a public manager can make. Employee distrust and frustration will build with each new bombshell and dictum from on high. Contrary to conventional wisdom, managers should tell it all, tell it fast, and tell the truth. Communicating with respect requires a direct and honest dialogue with employees about the challenges and the choices the organization is facing.

To forge a true partnership with a workforce during hard times, you must communicate in a timely fashion and in a way that employees can believe in, relate to, and easily access. Keep employees in the loop. Start early and lay the groundwork with plain-English discussions about what is happening and what lies ahead. Create forums for two-way conversation, letting employees know management both wants and values their feedback and perspectives. Continue to communicate to build continued credibility. Above all, tell the truth. Although you want to convey a confident and can-do attitude, don’t mislead employees or sugarcoat the situation.

Town Hall Meetings

Austin holds ongoing town hall meetings with employees at their worksites, scheduled on different days and times to make them accessible to all employees, regardless of when and where they work. This gives employees a chance to talk face-to-face with their city manager and department directors. All topics are on the table for discussion, uncensored and unscripted. As trends or themes develop during town hall meetings, they are noted, questions are answered, and information is communicated back to the entire workforce. Being prepared for tough questions in a town hall format is critical to success.

Rumor Control Hotline

The city created a Rumor Control Hotline using its intranet. Setting up a hotline can be as simple as establishing an email address for employees to use. Employees are encouraged to check the hotline site to obtain facts in response to rumors or hearsay circulating in their organization. Hotline responses to rumors need to be timely and truthful to be effective. Austin’s management committed to providing frank responses within 48 hours. By serving as an early warning system, the hotline proved to be a simple, cost-effective way to reduce misinformation and eliminate destructive rumors in the workforce. Austin’s hotline experiment made it clear that employees need not be kept in the dark to maintain organizational order. Employees can and will handle the truth if management listens and communicates in a genuine partnership with its workforce.

Employee Workforce Committee

Austin created an Employee Workforce Committee that meets monthly with the city manager. Employees nominate and elect their own departmental representatives. No managers are permitted to submit nominations or serve on the committee. Employee interest and participation is high; two-thirds of Austin’s employees voted in the first election. The committee gives the city manager unfiltered feedback on workforce issues and attitudes, and it serves as another way to circulate information within the workforce.

Control

Bad decisions often accompany organizational downsizing. But this need not be the case. Managers do have choices in how they handle downsizing. So that employees are not relegated to the role of helpless victims, they must be allowed to take part in making the choices that will directly impact their lives and livelihoods. If workers are left on the sidelines, they will feel exploited by management. Fear, frustration, and anger build when employees feel powerless. Instead, management can empower employees, allowing them to retain some personal control, by including them as an integral part of the decision-making. When employees believe their involvement is both wanted and valued, they become part of the solution and are productive and engaged.

Listen to Employees and Act on Feedback

Employees have an invaluable perspective. Keeping employees informed, listening to their opinions, and then acting on that feedback is the single most important way to build a viable partnership with the workforce. When faced with a $38 million shortfall in fiscal year 2003-04, line employees in Austin identified $10.5 million in viable savings and cuts that management had not previously caught. Given a target and asked how to meet that target without layoffs, employees continued to propose creative solutions. One eight-person work unit, faced with the elimination of two positions, proposed reducing each of their 40-hour workweeks to a 30-hour workweek. The employees submitted a reduced work-hour proposal with a detailed work plan explaining how the employees could still accomplish their unit’s mission through process reengineering. This plan produced savings equivalent to the cost of the two positions targeted for layoffs.

Employee Focus Groups and Straw Polls

Managers can use randomly selected employee focus groups and straw polls to help them make specific downsizing choices. Austin conducted an informal intranet poll of its employees on their preferences regarding a number of difficult decisions. For two years, more than 80 percent of the workforce voted to go without citywide pay increases to reduce the risk of employee layoffs. For these tools to be effective, results and an explanation of how management is going to use the results must be communicated back to the workforce.

Change

Government is change resistant. Recessions provide a rare opportunity for managers to sell needed change to their communities and councils and engage the workforce in true process improvements and reengineering. Being empowered to effect meaningful change in their work processes will reenergize employees and foster organizational pride while reducing frustration. Making efficiency improvements, even while losing resources, is a way to reap gains in spite of the losses that come with downsizing.

Ask Employees

Employees know what needs to change. Ask them. In partnership with employees, Austin committed to rethinking and reshaping service delivery models before cutting direct service levels. Employees flowcharted more than 250 business processes to produce efficiencies and cost savings in areas such as development review and permitting, building inspections, project management, a consolidated call center, information technology, human resources, and purchasing. More than one-third of the total cuts made to structurally balance Austin’s budget came from process improvements that reduced overhead and administrative costs to 4.5 percent of operations.

Celebrate Innovation

It is not uncommon to eliminate employee reward and recognition programs during a downturn. Don’t. This is when you need them most. Never miss an opportunity to reward employees by simply recognizing a job well done. During the downturn, Austin used a number of different programs to celebrate passion and foster innovation in the workforce. Even when funds are tight, there are low-cost ways to motivate and recognize the contributions of the workforce. Something as simple as an on-the-spot recognition at an employee’s work site, in front of his or her peers, can be very meaningful.

The End Result

Take care of employees by treating them with respect and dignity during a downsizing, and employees will, in turn, take care of the organization, its customers, and the community.

What does an organization gain by using the three Cs? Austin survived the downturn with minimal layoffs and a loyal, engaged workforce. Instead of losing employees as the economy rebounded, turnover was actually lowered from 9.1 percent to 7.5 percent, saving Austin an estimated $11 million in overtime, recruitment, and retraining costs. Austin’s reputation as a stable employer helped the city not only retain top employee talent but ultimately remain competitive in attracting an educated workforce to its revitalized employment market.

What does the community gain? Austin employees increased their commitment to community service during the downturn, with 67 percent of the workforce volunteering in the community. For example, more than 400 employees volunteered during their lunch hour as mentors and tutors in Austin’s low-performing schools during this time. And while Austin’s Combined Charities Campaign has always been one of the strongest payroll contribution campaigns in Central Texas, employees actually increased their contributions doing the recession, even though they went without pay increases for several years.

Conclusion

A roller-coaster economy, coupled with the growing costs of pensions and health insurance, portends a future of cost pressures for the public sector. Learning how to manage a workforce through deficits and downturns will become a critical skill for public managers. Going beyond the science of organizational reductions and mastering the three Cs—communication, control, and change—will help public managers reposition their organizations for a sustainable future.

Recommended Resources

City of Austin Budget Office. Budget Transmittal Letter. Adopted budget, fiscal years 2002-03 through 2005-06. CityTownInfo.com Staff. “Companies Cutting Back to Avoid Layoffs.”

CityTownInfo.com (April 13, 2009). http://www.citytowninfo.com/career-and-education-news/articles/companies-cutting-back-to-avoid-layoffs-09041301 (accessed November 24, 2009).

Downs, Alan. “Downsizing with Dignity.” Business: The Ultimate Resource at About.com. http://humanresources.about.com/od/layoffsdownsizing/a/downsizing.htm (accessed October 19, 2009).

Frauenheim, Ed. “Flexible, But Too Quick to Lay Off?” Workforce Management, Global Work Watch blog (July 24, 2009). http://www.orkforce.com/wpmu/globalwork/2009/07/24/flexible-but-too-quick-to-lay-off/ (accessed October 19, 2009).

Gotz, Jay. “Corporate Culture: How to Build an Effective One.” Fortune Small Business (October 2009): 61.

Marks, Mitchell. Charging Back Up the Hill: Workplace Recovery After Mergers, Acquisitions and Downsizing. San Francisco: Jossey-Bass, 2003.

Osborne, David, and Hutchinson, Peter. The Price of Government: Getting the Results We Need in an Age of Permanent Fiscal Crisis. St. Paul: The Public Strategies Group, Inc., 2004.

Robinson, Ryan. “City of Austin Demographic Data.” City of Austin Planning Department: July 2006.

Stellman, Leslie Robert. Mandatory Legal Considerations for Counties that are Considering Furloughs, Layoff, Benefits Reductions and/or Salary Freezes. Towson, MD: Hodes, Pessin & Katz, PA, 2009.

Sunnucks, Mike. “Layoffs, Furloughs, Pay Cuts Can Result in Lawsuits.” Phoenix Business Journal (May 15, 2009).