The Hidden Cultural Cost of Terminating to Save Money

Here’s the scenario: New Corp buys your 20-year-old company. They upgrade the ERP, add a new CRM, and see a positive bottom-line impact due to increased efficiencies. Then they turn their sights towards personnel. The company is profitable, so they are not required to cut to survive. Instead they begin to look for “low-hanging fruit” opportunities with salaries. They target Carla, who has been there since the beginning – through all the ups and downs.

Carla is paid $25K higher than the average employee in her position. Why? Because she’s received 20 years of cost-of-living raises (2%-5%) for the work she’s performed. Even in lean years Carla delivered and was rewarded. Now New Corp sees an easy way to add $25K back to the bottom line.

We’ve all seen a version of this movie before – and we know how it ends. You know this is a bad idea, but the new CFO says $25K is too much to give away just because Carla is a nice person. What case can you make for Carla?

Here’s mine: I believe that just as a business has intangible assets such as goodwill and intellectual property, I believe employees do, too. Legacy employees have tribal knowledge – a wisdom and methodology learned and passed down over time. Carla is a wealth of knowledge. She’s a connection to the past and a bridge to the future. She has long-standing relationships with employees, vendors, and clients. She knows “where the bodies are buried.”

Other employees, like Carla, become standard bearers. Much like the person who would fly a military unit’s flag, this person buys into and echoes the company vision and culture. They are change agents who lead by example and with conviction. They bring positive energy towards spreading the corporate culture. Standard bearers bring great intangible value to a company.

Carla kept up morale when the economy tanked. She maintained a good face when HR tried to launch their failed “ABC Initiative.” She has trained more people, sent more birthday cards, listened to more disgruntled employees, and passed out more tissue than the rest of the employees combined. And has always given more of herself than required.

Someone needs to quantify Carla’s intangible value to the CFO because it doesn’t show up on his spreadsheet. If it did, he wouldn’t think twice about underestimating her value to the company based solely on her salary.

You must also measure the impact to others when Carla is terminated. What message does this send? Termination is the reward for 20 years of dedicated service? With Carla gone, who do the others turn to for reassurance? Who will be the new standard bearer? Does New Corp not value dedication and loyalty?

So you can save $25K, but at what cost? This is what you have to weigh.

Place a value on the intangible assets of an employee before performing a simplified cost-savings analysis. You will likely save in the long-term if you do.