How do you keep staff motivated when times are tough? How do you maintain any sense of morale amongst your workers when you’re all surrounded with grim economic forecasts?

Experts says you should think seriously before laying off any staff and consider the consequences it will have on your remaining staff (morale drops and low morale = low productivity), on your customers (bad publicity = low sales) and on your company’s future (low productivity and low sales = disaster).

Cuts in staffing levels or even the expectation that it will happen can have a dramatically negative impact on employee motivation and productivity, they say.

Managers need to develop strategies to protect employee motivation, particularly during tough economic times. While it’s very tempting to reduce expenses by cutting staff numbers, business owners should first consider the impact such a move has on current and future employees.

Dr Larry Craft, developer of the Craft Personality Questionnaire (a tool that measures personality and motivation for pre-employment selection systems) says future employees will tend to look for companies that offer consistency and will shy away from jobs in the long run where the potential for turnover is the highest.

What’s more, studies have shown that employees who survive one or more ‘downsizing’ exercise are more likely to leave once any recession has past unless managers or owners take the time to explain that the company’s situation has improved.

David Sirota of Sirota Consulting and the lead author of The Enthusiastic Employee, says management is often too quick to respond to adverse economic conditions with employee layoffs.

Dr Ken Blanchard, a world-renowned leadership and management expert and co-author of the best-selling The One Minute Manager, says when his company faced financial difficulties post-September 11, 2001, everything possible was done to communicate what was happening to the company’s employees and to preserve jobs at all costs.

“After 9/11, we lost $1.5 million in sales. We had 45 trainers and consultants on the road and everything got cancelled… we still needed to pay them and we had to get them home. The economy was really bad and we realised we had to cut $350,000 a month in costs for October, November and December just to limp into black. We just shared that with all our people. They knew that things were tough and we divided everybody up into taskforces. Some had to increase revenues, others had to cut costs. Together we developed strategies.

“We didn’t want to get rid of people but we had to manage the whole cost area. They came up with ideas like everybody should take a salary cut and that if anybody left the company, we shouldn’t replace them. I think people rallied behind the idea.

“I told them, ‘When we pull through this, and I know we’re going to pull through this, we’re all going to go to Hawaii and celebrate.’ About 18 months afterwards when we were really back on our feet again, we took 350 people to Hawaii for four days of celebration.”

If you simply must cut staff numbers, you need to communicate very carefully with your remaining employees. That means telling people what is happening and why, demonstrating your support and giving encouragement.

Companies that allow de-motivation to develop amongst their workforces are likely to suffer a major slump in productivity. As well as the direct and obvious financial losses that lower productivity causes, de-motivated staff cost their companies in other less obvious ways like excessive absenteeism (whether through stress-related illnesses or time taken off to attend other job interviews); work-related accidents, poor quality work, unproductive activities, and even talking negatively about the company to other employees.

There is also the danger that redundancies have a negative effect on a company’s image. If your company is perceived to be one that treats its staff badly, it could have an impact on your company’s image and eventually your sales. According to research by Bain & Company fellow Fred Reichheld, employee loyalty and customer loyalty have a direct correlation. So companies that hold on to their employees and eschew a policy of frequent downsizing are far more likely to keep customers — and thus keep revenue flowing.