Just when HR might have felt like things were beginning to stabilize … along comes an economic downturn and potentially a recession. Anyone who’s been in the field for a while knows what’s coming next: cost cuts. Hiring freezes, slowing down discretionary projects, salary freezes and perhaps even the dreaded reductions in force (RIFs).
So, we should definitely be eyes wide open that soon our CFO and the broader finance team will come knocking on HR’s door asking for cuts. My strong advice for when this happens? Just. Say. No.
Seriously! Budgeting—both planning and adjusting—is a giant negotiation and mind game. A bit like employee compensation, with HR budgets you don’t get what you deserve—you get what you negotiate. In fact, many HR budgets over the last few years have increased dramatically, as the demand for all aspects of HR has skyrocketed. These resources are extremely hard to get, so savvy HR pros know to defend them with vigor. And never have I ever heard of an HR leader being shown the door for protecting their budget. On the other hand, however, I certainly know a number of stories of CHROs being terminated for “not delivering,” “failing to drive change” or having an “inability to keep up and innovate,” which is often directly rooted in inadequate resources. Threats to your budget are threats to your career.
While your CFO may have an SG&A (sales, general & administration) cost-savings target, this is oftentimes disconnected from the expectations that your CEO and the broader organization have for the HR programs and service levels you’re on the hook to provide. It is unlikely that the commitments to DEI, enhancing the employee experience, employee retention, career development or figuring out culture in hybrid will all of a sudden be forgotten. Thus, if HR signs up for big budget cuts, they’re going to be left in a really crappy situation with high expectations and low enablement.
Think about a scenario where HR was entirely outsourced, and now the CFO suddenly wants a 20-30% cut in functional costs from the vendor. The provider would rightfully demand a reduction in scope or service levels in order to hit these cost-savings targets. And cost cuts must necessarily come with tradeoffs in priorities and expectations.
If you don’t negotiate these offsets, you’re signaling that the prior HR resource structure was “fat” and over-resourced if you can make big cuts and still deliver the same results. That’s a very bad look for our professional brands, despite our impulses to be heroes. Nothing makes a CEO trust a functional leader less than slashing their budget and then seeing no change in performance or output. It’s also worth remembering that the cuts we make to 2022 budgets often become the new starting point for 2023 budget planning—so, in not negotiating, you’re locking in years of not being set up for success.
Saying “no” to cuts from HR is a savvy opening move in any budget exercise. It is a boundary, it shows that you need to be taken seriously and it lowers expectations that much savings will come from HR. In fact, HR spend as a % of SG&A is often quite small—so, as a former consulting partner of mine would say, we are “milking mice” when organizations believe that HR departmental cuts will move the needle on overall organizational cost-takeout targets. And we all know how time-consuming and costly it can be to rehire HR staff, onboard new vendors or restart paused initiatives.
Saying “no” doesn’t mean you can’t be helpful. After all, the CFO really just needs to deliver savings; a dollar is a dollar, no matter where it’s found in the overall cost base. HR has tons of insider knowledge about where there may exist fat to cut, whether it be in the org structure with too many layers or spans of control that are narrow, in initiatives that don’t actually deliver ROI, inefficient or unnecessary processes, or even in low-performing talent or vendors that should have been released a long time ago. Make the finance team your ally to help cut through the legal red tape and let go of low performers in the business or poorly delivering vendors, and clean up the org from past mistakes once and for all.
Remember that old saying “Put your money where your mouth is”? Well, it applies to organizations as well. Budgets are an expression of the values an organization has in terms of capital allocation. It doesn’t really matter what your exec team members say they value in earnings calls, townhalls or intranet articles—what they really value is what they fund.
So stand firm, redirect the cost “hatchet” and don’t sign up for cuts without lowered expectations of HR. You likely got into this field to help people and make an impact, and you need budget accordingly in order to do that. Defend budgets because they are absolutely required for the organization to succeed in this still-competitive labor market, and they are absolutely critical to your career success and personal satisfaction!
Just. Say. No.
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