Working From Home – What Have We Learned?

Working From Home – What Have We Learned?

Well, we have been working from home now for nearly five months and probably will continue to do so for another year.

So what is the verdict? 

 

The Good News

Many leaders anticipated that employee performance would significantly deteriorate. Given that numerous studies over the years had shown that falls in productivity accompanied a significant change, their expectations were not unfounded. However, a Harvard Business School survey indicated that workers adjusted to working virtually far quicker than expected. In many cases, workers felt they were as productive as they were before. According to one employee, “I’m able to get everything accomplished just like before, and I think everyone else is finding they can too.” This quick return to productivity is remarkable.

Not to say the changes didn’t cause problems. Job satisfaction and engagement fell sharply after two weeks of working virtually. However, by the end of the second month, both measures had recovered dramatically. As another employee put it, “It took some time to get used to it and for things to go right. It was a learning process.”

The improvements in satisfaction and engagement resulted from organizations finding the right balance between meeting and work time. There were issues with too many virtual meetings, leaving no time to do the actual work. Also, people had to get comfortable with communicating over Zoom, Skype, Teams, etc. 

 

Work-Life Balance

The biggest issue was figuring out how to manage work-life balance, basically turning off work at home. According to research, managers who cannot “see” their direct reports often struggle to trust that their employees are working. With such doubts, managers sometimes start to develop the unreasonable expectations that team members be available at all times, ultimately disrupting their work-home balance and causing more job stress.

Data provided by Humanyze from email, chat, and calendar systems across a global technology company supported the HBR survey results. The data revealed that the workday significantly increased at the beginning of all-virtual work. Immediately after the lockdown began, about 50% of employees could maintain at workday of 10 hours or less, compared to 80% pre-COVID. While workday time has started to trend back to pre-lockdown levels, workdays are still 10% to 20% longer on average.

Furthermore, since all-virtual work began, employee stress, negative emotions, and task-related conflict have all been steadily falling; each is down at least 10%. Also, employees have experienced an approximately 10% improvement in self-efficacy and their capacity to pay attention to their work. Employees now say they are “falling into a consistent routine,” “forming a pattern [of work time and breaks] with my coworkers,” and “learning what makes me the most productive and how I can best manage my time and energy.”

From CEOs down, many saw benefits from working from home, including a reduction in travel. One CEO hoped that this had put an end to the ‘fly across the country for a one-hour meeting’ expectation forever.” Overall employees reported that they had:

  • More focus time
  • Shorter meetings
  • More flexible time with family; and
  • No loss over missing the daily commute.

 

Challenges for Managers

While the research has shown an increase in the workday and performance returning or above pre lockdown levels, not all management attitudes reflect this. Different HBR research suggested that of managers:

  • 56% are not confident in their ability to manage remotely. Their beliefs about remote employees’ performance reflect their lack of confidence in their ability to manage their reports.
  • 60% agreed or were uncertain that remote workers usually perform worse than those who work in an office. 
  • 58% questioned whether remote workers could remain motivated over time.

The research further shows that:

  • Men are more likely to have negative attitudes to remote working and mistrust their own employees’ competence.
  • Those in non-managerial/non-professional roles had lower self-efficacy for managing remote workers, more negative attitudes, and greater mistrust. 
  • Younger managers are more likely to lack self-efficacy for leading remote workers.

With COVID, many employees are facing increased stress, especially for those with compromised finances or families requiring care. Thus some are struggling to perform at their pre lockdown levels. The concern is that this will create a negative feedback loop in which manager mistrust leads to micromanagement, which then leads to drops in employee motivation, further impairing productivity.

Therefore, managers at all levels need support and training, so that management quality will improve, which will improve remote workers’ wellbeing and performance. This support for managers must be a critical focus of senior leadership if employee performance is to remain high as companies move forward with possibly another year of work from home. 

 

What Else Could Go Wrong

With Google now saying that employees can remain virtual till summer 2021 and others following suit, should we all go virtual were we can?

A key issue with a virtual workforce is the loss of unplanned interactions that lead to significant outcomes. In physical offices, people who don’t usually work with each other to connect accidentally, and that interaction sparks new ideas. While the HBR study found employees increased their communication with close collaborators by 40%, contact with other colleagues fell by 10%. Also there less schmoozing and small talk among virtual workers, which has shown to lead to lower levels of trust.

In addition to a lack of spontaneity, three other issues face organizations in a virtual world that undermine organizational health.

Onboarding new employees
Research has shown that great onboarding involves two sets of activities:

  • Exposing new employees to “how things are done around here” by indoctrinating them into the company’s vision, history, processes, and culture; and
  • Allowing them to apply their signature strengths and express their genuine selves.

While the first has been adapted relatively well to a virtual world, the second is much harder. To achieve the second requires numerous in-depth interactions, and existing employees are accustomed to having those in person.

Weak Ties
These are the shallow or peripheral relationships among members of an organization who don’t work closely with each other but have nonetheless connected over time. Weak ties play an important role in organizational performance, including innovation, raising or maintaining product and service quality, and attaining project milestones. If people cannot interact face to face and just connecting through Zoom and document sharing, weak ties are under threat.

Fostering relationships
It is hard to foster relationships in a virtual environment outside your direct team. Furthermore, with everyone working from home, companies are finding more-limited value in rotational programs, cohort-based training programs, or even cross-functional staffing assignments. While the return from such programs is hard to identify at present, it is an investment that has a significant ROI in the long term. Long-term relationships that once sprang from such shared experiences are undoubtedly at risk and weaken the organization. 

 

What Happens as Some Return

A possible reason identified for the continued performance of virtual employees is that everyone experienced simultaneously, while in prior studies, only some had been working from home. If this is right, then the problem may return when office work resumes.

Presently, those who have returned to the office are a minority, comprising those who find it most challenging to work at home. However, as more people go back to the office for various reasons, those who remain at home may start to feel isolated, affecting performance.

A key reason for employees to return is paranoia. The pandemic has helped managers identity those who are indispensable and who are not. For those deemed non-indispensable, there is the concern that lack of sight will result in termination or offers of early retirement. As more people reason the same way, the pressures to return will grow. Once those back at work reaches a critical mass, the rest may be obliged to follow suit.

For the moment, it is waiting and see.

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Rents Are Falling

Rents Are Falling

COVID is leaving a trail of destruction across the country!

 

Retail

As COVID has brought tourism to a temporary standstill, left consumers avoiding others and ordering online, and millions are saving rather than spending, retail is suffering. Expectations are that Global luxury retail sales will fall by 29% in 2020. With falling sales and bankruptcies, America’s prime retail districts are losing tenants, and rents are in free fall. The Covid-19 crisis will likely have a lasting impact on premier shopping streets e.g., 5th Avenue in New York, the Magnificent Mile in Chicago, the Las Vegas Strip, and Rodeo Drive in Los Angeles. It appears that while sales at premier locations are falling, sales closer to home and in the suburbs are recovering faster.

According to Naveen Jaggi, president of JLL’s Retail Advisory team, “We will see an extension of what happened in 2008 and 2009, which left American consumers shifting toward value more aggressively. More and more retail real estate space is going to be taken up by non-luxury. Take Fifth Avenue. You see a Vans, a Five Below, and a Timberland. Those kinds of brands are the ones taking space. That’s all you need to know about the direction of Fifth Avenue.”

The reasons for the movement of non-luxury into these premier shopping areas are the new companies are still profitable, and rents are falling. In New York, the impact is:

  • During Q2, 2020, average asking rents along major retail corridors in Manhattan had declined for the eleventh consecutive quarter. Prices have dropped 11.3% from a year ago, and for the first time since 2011 were below $700 per sq. ft.
  • Rents on Prince Street in SoHo experienced the most significant declines, falling 37.5% year-over-year to $437 per sq. ft.
  • The Upper Madison Avenue corridor from 57th Street to 72nd Street, saw rents drop 15.3% from a year.
  • The Plaza District along Fifth Avenue, which runs from 49th Street to 59th Street, saw rents fall 4.8% from a year ago.
  • The number of ground-floor leases available in Manhattan’s 16 retail corridors hit 235 a record.

Furthermore, it is not over; CBRE is expecting rents to continue falling through 2020.

COVID’s acceleration of the decline of malls is relentless, driven by falling retails in-store sales but also excess retail space. The U.S. has more square feet per capita or retail space than in any other country, and that is not sustainable.

Several retailers have stopped paying rent during the pandemic, which in some cases is resulting in litigation. Simon Property Group is suing Gap Inc. for not paying its bills. Furthermore, many retailers are also using the pandemic as an opportunity to renegotiate their leases to get better deals, as property owners are desperate to fill space.

 

Office

COVID has put the brakes on the U.S. office market too. Data from JLL shows that in Q2, leasing in the U.S. dropped by 53.4 percent. Also in Q2, the U.S. office market experienced occupancy losses of 14.2 million sq. ft., bringing year-to-date net absorption to -8.4 million square feet. Most of this was due to the lockdown, but also partially due to wait-and-see strategies, and additional time spent negotiating. In addition, for the first five months of 2020, the average term of an office lease in the U.S. fell 15 percent to about seven years, primarily driven by tenants at the end of their lease. According to Ben Munn at JLL it’s “likely to fall farther.” Office development remained constant and in New York City 25MM sq. ft. of new office product is still planned for delivery between now and 2024

Companies are avoiding long-term decisions, instead, they want flexibility and are currently extending work-from-home programs. Analysis by the National Bureau of Economic Research showed 37 percent of jobs in the U.S. can be performed entirely at home. According to Marc Landis, the managing partner at Phillips Nizer LLP, “As we start talking to clients about their needs, and the balance of this year, and deals they want to do in 2021, they’re absolutely looking for less space and greater flexibility. I saw hesitancy in the transactions where we were involved. People are more focused on what they could cancel or change as opposed to new deals.”

Rent abatements and deferrals for existing leases, as well as collections, are still taking most of the effort at the moment rather than new leases. Companies are choosing to renew or extend leases rather than search for new space at this time. Like many other areas, strong relationships and contract stability with landlords have been key. Traditional landlords have been much better than coworking models like WeWork. According to Landis, “WeWork participants found that they were not given a great deal of flexibility. Unlike a traditional commercial landlord, who would take a long view and work with the tenants in the short term, WeWork greeted people with an extended middle finger.”

What happens in H2 2020 will depend on any additional government support and the resurgence of COVID. A survey by Morning Consult showed one-third of remote workers won’t return until a vaccine is available. However, the bright light was Facebook’s large 730,000 sq. ft. lease in Midtown Manhatten, taking its acquisition of New York office space to over 2.2MM sq. ft. in less than a year. Whether others follow suit is yet to be seen.

 

Residential

The impact of COVID on residential rents is reflective of what COVID is doing to the country. The most expensive cities, cities across the oil patch, college-focused cities, and tech and education hubs such as San Francisco and Boston are experiencing sharp year-over-year rent declines. San Francisco has seen the decline in rents for one-bedroom and two-bedroom apartments decline by 11.8% and 12.1% respectively over the last 12 months. Not only is San Francisco suffering. The following table shows the 35 cities among the top 100 rental markets with year-over-year rent declines in July for 1-BR apartments.

Decliners 1-BR Y/Y %
1 Syracuse, NY $820 -15.5%
2 Madison, WI $1,060 -11.7%
3 San Francisco, CA $3,200 -11.1%
4 Irving, TX $1,030 -9.6%
5 Laredo, TX $750 -9.6%
6 San Jose, CA $2,300 -9.4%
7 Denver, CO $1,440 -8.9%
8 Aurora, CO $1,090 -8.4%
9 Seattle, WA $1,760 -7.4%
10 New York, NY $2,840 -6.9%
11 Providence, RI $1,400 -6.7%
12 Charlotte, NC $1,240 -6.1%
13 Tulsa, OK $620 -6.1%
14 Boston, MA $2,350 -6.0%
15 Fort Worth, TX $1,090 -6.0%
16 Anaheim, CA $1,650 -4.6%
17 Orlando, FL $1,240 -4.6%
18 Santa Ana, CA $1,700 -4.5%
19 Virginia Beach, VA $1,050 -4.5%
20 Louisville, KY $860 -4.4%
21 Los Angeles, CA $2,140 -4.0%
22 Raleigh, NC $1,040 -3.7%
23 Salt Lake City, UT $1,030 -3.7%
24 Oakland, CA $2,220 -3.5%
25 Houston, TX $1,110 -3.5%
26 Pittsburgh, PA $1,050 -2.8%
27 Washington, DC $2,160 -2.7%
28 Spokane, WA $830 -2.4%
29 Corpus Christi, TX $830 -2.4%
30 New Orleans, LA $1,400 -2.1%
31 Durham, NC $1,090 -1.8%
32 Plano, TX $1,150 -1.7%
33 San Antonio, TX $880 -1.1%
34 Scottsdale, AZ $1,420 -0.7%
35 Minneapolis, MN $1,390 -0.7%

However, it is not all bad news. There were 60 cities with increases in 1-BR rents – compared to 35 cities with declines. The top 35 increases were:

Gainers I-BR
1 Cleveland, OH $940 16.0%
2 Indianapolis, IN $870 16.0%
3 Columbus, OH $810 15.7%
4 St Petersburg, FL $1,270 15.5%
5 Reno, NV $1,050 15.4%
6 Chattanooga, TN $900 15.4%
7 Cincinnati, OH $900 15.4%
8 Baltimore, MD $1,360 15.3%
9 St Louis, MO $910 15.2%
10 Norfolk, VA $920 15.0%
11 Lincoln, NE $770 14.9%
12 Detroit, MI $700 14.8%
13 Rochester, NY $960 14.3%
14 Chesapeake, VA $1,130 14.1%
15 Memphis, TN $830 13.7%
16 Bakersfield, CA $830 13.7%
17 Des Moines, IA $920 13.6%
18 Newark, NJ $1,290 12.2%
19 Boise, ID $1,070 11.5%
20 Nashville, TN $1,300 11.1%
21 Akron, OH $610 10.9%
22 Sacramento, CA $1,430 10.0%
23 Fresno, CA $1,100 10.0%
24 Wichita, KS $670 9.8%
25 Philadelphia, PA $1,500 8.7%
26 Oklahoma City, OK $750 8.7%
27 Arlington, TX $890 8.5%
28 Gilbert, AZ $1,310 8.3%
29 Tucson, AZ $700 7.7%
30 Richmond, VA $1,150 7.5%
31 Colorado Springs, CO $1,000 7.5%
32 Winston Salem, NC $820 6.5%
33 El Paso, TX $690 6.2%
34 Buffalo, NY $1,050 6.1%
35 Atlanta, GA $1,470 5.8%

While many of the gainers are showing gains in double digits, it is still too early to celebrate. The gainers are due to people moving home as they can WFH, or they have lost their jobs and seeking to save money.

However, the moratorium on evictions has just ended, and whether or not the President or Congress renews it, it is artificially affecting the market. If the federal eviction moratorium isn’t reestablished soon 40% of US renters are at risk of losing their homes, according to Statista. The CARES Act’s eviction safeguard is thought to have helped as many as 23 million US families (roughly one-third of all US renters) stay in their homes during the coronavirus recession.

Furthermore, without additional unemployment support, many more renters will be unable to pay their rents.

The issue for landlords is:

  • If there is no additional unemployment benefit provided, more tenants will stop paying; and
  • If they evict those that are not paying, who do they replace them with, one unemployed tenant is no better than another.

I expect this to put further downward pressure on rents, but not just in those cities in the most significant decline list, but reduce the increases in the second list. The issue is how much will the collapse in low rental costs, where most of the unemployed live, affect more expensive rental properties.

I expect COVID to continue to wreak havoc for at least another 12 months, what the rental market will look like then, who knows. But it will be different.

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Larry Kudlow is at it again. Last Sunday, on CNN, he said the economy is getting better, fast. Among his many statements were:

  • “I don’t think the economy is going south; I think it’s going north.” The economy fell 32% on an annualized basis in Q2. While there was an improvement in late Q2, it appears to be reversing as cases and deaths rise in the South and West.
  • “You’re in a housing boom right now.” Building permits fell by 30% in Q1 and 10% in Q2 over 2019.
  • “You’re in a retail-sales boom right now.” While retail sales recovered in July, they were down 25% in Q2 and are still below last year.
  • “You’re in an auto car boom right now.” On July 29, GM reported second-quarter U.S. vehicle sales declined roughly 34.1% over the last year.
  • “Manufacturing—look at the ISM indexes—all are booming.” For Q1, manufacturing productivity was down 30% over the prior year, for Q2 70%. While there was a glimpse of recovery in June, we will have to see if it holds, but we have a long way to get to “booming.”
  • “New business applications are skyrocketing.” Business applications were down 2.9% in Q1 and rose 2% in Q2 over the prior year. Again some improvement, but skyrocketing, I think not.
  • “The jobs picture remains strong.” The unemployment rate declined from 14.7% in April to 11.1% in June; however, the trend is once more reversing. With such high numbers, “strong” is far fetched.
  • “Economic recession? I don’t buy it.” The Definition of an economic recession is two consecutive quarters of economic decline. A 5% fall in Q2 and 32% fall in Q2, I believe, meets the criteria.
  • “The V-shaped recovery is in place. There is going to be a 20% growth rate in the third and fourth quarters.” The Conference Board is expecting 20.6% GDP growth in Q3 but 0.8% in Q4.

Now I understand that the administration is trying to push the narrative that the economy is excellent, and we must return to “normal.” However, as I have said many times before, this is a public health crisis, and until we fix the public health crisis, we cannot fix the economy. The surge in cases and deaths through the South and West have harmed the economy in those areas. As the COVID cases stabilize and fall, they should rebound. However, we are now seeing cases starting to surge in the middle of the country. Next up is the winter with flu season and more COVID cases as people stay indoors.

Many good CEOs believe that when talking to your employees during times of crisis, you need to be honest, and I totally agree. They can see what is going on, and if you paint everything in a positive light, you diminish credibility and lead them to fear the worst. So it is with the country. The administration needs to be honest, stop promoting solutions that are ineffective from people that believe “endometriosis and other potentially dangerous gynecological conditions are the residue of sexual intercourse with demons.”

For me, Larry Kudlow lost credibility with after his piece in 2005, “The Housing Bears are Wrong Again” in which he dismissed “All the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market.” His piece in 2007, “Bush Boom Continues,” where he predicted the economy would continue to grow just as it was collapsing, only confirmed my views. A banker who worked with Kudlow at Bear Stearns was quoted in Vanity Fair, “Over his entire career, I can’t recall a single forecast that he made that was accurate. You know, there’s the old joke about the economist that predicted seven out of the last four recessions. Kudlow makes that guy look good.”

Sending out Kudlow weakens the belief in the Administration by Wall Street and CEOs, which slows any economic recovery. Be honest and this time “Is the public health crisis stupid.”

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Compensation in a COVID World

Compensation in a COVID World

We are all dealing with the impact of COVID. For some, business is soaring, others it is a struggle to survive.  Whichever is impacting your business, it will impact compensation planning for 2020 and beyond. As I said a few months ago, your budget and plans as of March should be in the shredder and along with them your compensation structure.

From what I hear, companies are following the courses of action:

  • Cutting or increasing compensation budgets;
  • Changing work hours and/or rates of pay;
  • Indefinitely laying off, or, significant increases in hiring; and
  • Changing incentive and sales compensation plans (both plus and minus) to retain valuable talent and customer relationships.

So what is your company doing or planning to do? All your employees are wondering and watching, so the sooner you address these issues, the better. Communication is essential, and compensation is all about communication during times like these. 

 

Your Financial Position

How has your business been financially impacted? Managing significant increases in business levels can be as challenging as big declines. Therefore, you need to have realistic forecasts, and an understanding of your ability to pay your employees is critical. Many have taken PPP loans; however, they were a bridge gap, and it looks like the canyon is much more extensive than the bridge. We will be living with the trials and tribulations of COVID for another 12 months or more, so Congress’ eight weeks cover is insufficient. 

 

Review employees and their value to the “new” organization

It is time to review all your employees. Do they fit with the “new” organization and its direction? Many great people have been laid off, sidelined, or are unhappy in their current positions. Thus there is an opportunity to hire better people that would have been unavailable before or people you need to execute the pivot you are experiencing.

Also, look at your employees and determine:

  • Who rose to the occasion, and who didn’t?
  • Who has pulled their weight and more during these hard times?
  • Who has lead and supported others when they were struggling?
  • Who didn’t?

Now is the perfect time for a talent assessment exercise, e.g., a 9 Box matrix to determine who is performing and their potential in your “new normal.”   

 

Review base compensation plans

How long is it since your compensation structure system was last updated? What data did you use to develop your base pay program? How was that data aged, and to what point in time?  

Currently, it’s critical to understand your compensation structure and related pay practices. As businesses adjust to the “new normal,” compensation and pay practices are in a unique position. Some employees will receive a pay rate that is less than what they were making with unemployment compensation, especially with the federal support. Some employees will have received premium pay (e.g., hazard or appreciation pay differentials) because they were “critical workers.” How long will can you support this? How do you communicate with employees if, or when, you stop the premium pay? Since the COVID crisis continues unabated, how do you justify to your employees that they were critical a month ago, but not now, or not in four months when we expect the winter to make the crisis worse? Managing your communication is vital as you may alienate good employees who feel betrayed. Furthermore, realize that employees will have become dependent on the additional income.

The market is providing so many mixed messages about pay structure, that it is hard to know what one should do. Some of the views are:

  • No need to adjust pay ranges this year, maybe not even next year.
  • Reduce pay ranges temporarily, at least, which is becoming common, especially if it means keeping staff.
  • To remain competitive and attract the best talent, you may need to increase your pay ranges.
  • Those organizations that are reducing staff may need to increase the compensation of remaining employees who will have to take on additional roles and responsibilities.
  • Those organizations pivoting to new markets, products or services and need new people, what industry norms do you use to determine pay structure?

Salary survey data lags the market and survey data will not be available until 2021 or later. Thus, without reliable data, you need to understand your competitive market for the people you need and determine what you can offer in that situation.

You need to review your employees’ compensation in terms of:

  • New or fewer responsibilities;
  • Value to the organization as a result of any changes due to COVID;
  • Value to the organization as a team player and going beyond, or not reaching, what is required:
  • Comparison-ratio data (current rate of pay divided by target/market rates) once the revised base compensation structure is determined.

It may be necessary to change starting pay rates for positions and employees in your pay structures. If, however, you are looking to reduce pay, ensure beforehand that you are not stepping into a minefield, and get advice from an HR professional. Issues to be avoided are:

  • Reducing the compensation of those on contracts with specific payment;
  • Appearances of discrimination or retaliation; and
  • Reducing compensation of those on H-1B and E3 visas.

Finally, if reducing pay for existing employees, you need to communicate the changes, what will it take for compensation to return to previous levels. With regard to the trigger event to return pay, it must be something that everyone can see. If not it will seem arbitrary by management and therefore detrimental to morale and performance.  

 

Review incentive compensation plans

With your strategic plan in now the shredder, hopefully, a new one is now ready or on its way. Your incentive compensation plan needs to be tied to your strategic plan to ensure alignment with the organization’s goals, and so incentive compensation should be adjusted annually. However, most companies will have to adjust mid-year as, during this accelerating period of COVID, six or more months is too long to wait. 

Examine all your incentive plans and review them to understand all of the plan provisions. You need to stress test plans monthly in light of changing market and financial conditions to evaluate their impact on business and individual employees. The rapidly changing business environment requires careful examination of such plans to ensure they represent the intent of and are aligned with the business strategy. 

For those employees who receive a significant portion of their compensation in the form of incentive compensation, there are several factors to consider.

  • If your business plan is out the window, the compensation targets need to change.
  • If, due to falling revenues, compensation is likely to drop dramatically, resulting in retention issues, then migrate more to base compensation.
  • Adjust goals so that there are wins! Incentive compensated employees, usually salespeople, are very competitive. If you remove wins from their life, their performance may suffer.
  • Those businesses that are realizing a significant increase in activity, incentive compensation is an excellent way to reward performance. However, a best practice is to establish maximum award payout levels as well as performance thresholds, as the increased performance may be due more to unexpected economic forces than the efforts of employees.
  • If employees are likely to realize unexpected windfalls that are not a result of their efforts, be prepared to make adjustments
  • Due to the uncertain nature of the economy, revisit your payout schedule to ensure it continues to make sense in today’s environment.
  • Run Monte Carlo simulations on your incentive compensation plans to ensure that they don’t pose a risk to the company.

However, most of all, communication is key! Communicate clearly, early and often. Managing employee expectations during difficult times is critical. Failure to communicate no matter how good the resulting plans are will cause problems in the organization that could be damaging at times like this. 

 

In case you missed it, communication is key!

Compensation is an emotional issue, and it impacts the lives of all your employees and their families. At this time, everyone is experiencing a great deal of stress:

  • Is my job safe?
  • Can my children return to school?
  • Are my parents safe?
  • Do I have enough cash to survive?

So now is not the time to add to that stress, as it will sabotage employee performance and thus corporate performance. Communication is essential — it is genuinely all about communication.  

You cannot stop rumors and “water cooler” talk, especially in a virtual world. Thus, even if you say nothing, your employees are watching and listening. Your behavior, in the absence of a clearly stated rationale, will drive assumptions about both the organization’s and their own prospects. Many will assume the worst possible scenario.

No news is NOT good news during uncertainty and overly optimistic pronouncements, which contradict the information they see if even worse. Whatever the report, the employees still want to know what their leaders are thinking and doing concerning strategy and tactics. This communication will provide the background to the reasoning involved when making compensation decisions. While they may not agree, they will appreciate honesty and transparency. It will also stop the rumor mill, reduce wasted time due to stress and worry, and provide focus.

Therefore, your managers and supervisors must have conversations with their direct reports on what to expect, what you know right now, and what you don’t know yet.

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Face it; we are in a time of crisis, and leaders earn their pay when the proverbial “solids hit the air conditioning.” 

While many in the Administration, including the President, claimed that no one could have forecast Covid-19 and when it would hit, many people, including the Administration, had produced papers and done “war games” on a pandemic hitting the world. Unfortunately, those at the top had not read them or did want to hear the bad news. That is failed leadership as leaders get the big bucks to deal with ambiguity, and during crises, uncertainty becomes exponential. Know what is coming helps that and denial of what you don’t want to hear is not leadership.

Research has shown that three of the four qualities of a great business leader are:

  1. Sets vision and strategy;
  2. Drives growth;
  3. Displays financial acumen.
  4. Crisis management. This skill is underappreciated, overlooked, and often not even one of the top requirements — until a crisis hits.

So, where does the leader start in times like this? Start with Maslow’s Hierarchy. In a crisis, people are scared, and before they are willing to consider the position of the company, they need to know their most basic needs are met, and they feel safe. If they cannot buy hand sanitizer, a significant other is lost their job, or a loved one is sick, you are unlikely to get much attention on the corporate strategy. Blaming others will not help.

Once you have addressed their essential needs, then the panic moves towards the organization, and people turn to the leader for definitive answers. However, as the situation is fluid, sometimes the answer is, “I don’t know right now.” While that is the answer, it doesn’t satisfy the people. Thus leaders have to quickly follow such a reply with, “but we are going to do X.” Having a response to ambiguity is essential and comfort for your employees. When dealing with a crisis like we are today,  leaders need more than a plan; they need Plan B, Plan C, and Plan D as well. As Bain Consulting put it in a recent document, whatever you imagine the worst-case scenario to be, it will be worse.

What will become obvious during a crisis is the culture of the organization. If the culture is bad, there is little a leader can do to save it. Culture is key from the beginning. However, Korn Ferry has identified six steps for leaders to plan and comfort their people.

  1. Anticipate. Predict what lies ahead
  2. Navigate. Course correcting in real-time
  3. Communicate. Continually and honestly
  4. Listen. To what you don’t want to hear
  5. Learn. Learn from the experience and apply in the future
  6. Lead. Improve yourself to elevate others

 

Communication

I believe the key is communication.

How to communicate. Often!

But in what method? Looking at two great crisis leaders, many will think of Roosevelt and Churchill. Many CEOs are not able to write speeches like Churchill, nor should they try. Instead, Roosevelt’s fireside talks are a better model. In crisis communication, the style is as critical as much as having the right message.

The CEO has to communicate a message to two audiences: the workforce and the customers. The message needs to demonstrate that the company has a plan to deal with the crisis. In the case of Covid-19, this may involve Work From Home or Supply Chain adjustments to ensure production. Staff and customers need reassuring that the company has sufficient financial resources to survive the economic downturn.

  • Be Honest. Shawn Engbrecht, a former US Army ranger, says in his book, “Invisible Leadership,” “As a leader, you can promise everything to the many until you are unable to deliver even a little to the few.” In the end, “Failure to tell the truth rapidly erodes trust and confidence in higher command.”

  • Face the Bad News. As Jim Collins says in “Good to Great,” “Who tells you the bad news?” Further, as Ben Horowitz in the “Hard Thing About Hard Things” notes that your employees know there is a crisis, trying to hide it from them and pretend all is well is not reassuring, but by doing so, you fail them and the organization. Tell the bad news, or as Mr. Engbrecht advocates, “embracing the suck.” You need to accept where you are at a given moment: “Wishing, hoping, and praying the problem away does not work, so don’t waste your time with coulda, shoulda, or woulda.” In short, no sugarcoating.

 

Anticipate
To anticipate the “unknown” of the current crisis against the “known” of previous ones, leaders gain perspective, identify patterns, connect the dots, and determine appropriate and timely responses. Too often, people don’t consider all the possibilities. It is critical to be out in front with a planned cascade of possible actions based on which scenarios unfold, likely more aggressive than your team can imagine right now. Anticipation becomes a Monte Carlo simulation in action. At times like this, move to think in ranges using probabilistic analysis rather than certainty, the latter is bound to be wrong. As most project management looks to Critical Path, probabilistic analysis shows Critical Bottlenecks. A good quick read is Why Can’t You Just Give Me the Number?

At each stage, what are the implications for employees, customers, and investors? A strategy is making a bet, and the skill of anticipating improves one’s odds. For the broader strategy, take a look at the National Defence University (NDU) ‘s “Weathering the Storm: Leading Your Organisation Through a Pandemic.” Produced in 2006, it is a useful and prescient document. Leaders need to analyze the tasks required for the organization to continue operating and prioritize them. Ensure the performance of essential functions, and employees are trained across different disciplines. Have succession plans throughout the organization, so your employees know who will cover for each other if someone is sick.

 

Navigate
As you manage through the crisis, plans may no longer be viable or workable. You need to change quickly and pivot to a new strategy. Darwin did not say, “It is survival of the fittest,” as many have claimed, but those that are the quickest to adapt to the changing environment survive. Daily briefings, updating everyone with the latest information to determine if the plans are still viable and, if not, what changes are required.

 

Lead
Many leaders’ natural inclination in a crisis is to go into a command-and-control mode. That’s not leadership. As David Marquet noted in “Turn the Ship Around,” move the decision making to where the information is. You, as the leader, cannot make all the decisions, too much information is coming in, and there are too many decisions during a crisis. Thus, leadership is creating a “bottom-up” culture to accurately perceive today to predict tomorrow. Also, create a fully dedicated crisis “war room” team to help through this; you cannot do it alone.

  • Urgent vs. Important. The constant battle in our lives! The urgent emails and claims on our time, take us away from what is essential. We have all become Pavlov’s dogs, responding to the urgent, that we don’t see what is critical. During a crisis, everything blurs as events and their implications continuously change. What’s important often becomes urgent, and what’s urgent becomes critical. However, leaders must delegate the urgent by empowering others to lead around a common purpose.

  • Leave No One Behind. In a crisis, effective leaders must connect with, motivate, and inspire others, and show genuine compassion. As I have said before, leadership is hard, and it is not about you, but about those you lead. Military leaders who put the safety and well-being of others before themselves best reflect this leadership. Those military leaders who say, “I’ve never lost a soldier” reveal a deep mindset of humility and accountability, rather than hubris and bravado.

  • Know What to Do When You Don’t Know What to Do. In a crisis, learning either accelerates or you fail. The agility to learning to the “Nth” degree, applying past lessons to new and unfamiliar situations, is now essential. You need to know what to do when you don’t know what to do, but be willing to pivot at a moment’s notice if new information requires it.

 

Listen
A good leader must listen to staff concerns and answer their questions. During a crisis, that may require some patience as dismissing their concerns reveals a lack of empathy, destroying trust. However, as Mr. Engbrecht’s notes, “the quieter you become, the more you can hear.” Given where we are with Covid-19, online town-hall gatherings are great. My Vistage groups are having weekly Zoom meetings to check-in, support each other, and share best practices.

So, have a clear message, keep calm and honest. Do not sugarcoat things, blame others, and remember who this about. Share the pain, i.e. take a larger pay cut than the employees. Good leaders show they face at least some of the same dangers as their troops.

I wish you all the best, and may you all survive!

 

Copyright (c) 2020, Marc A. Borrelli