Economic Recession Its Impact on the Markets Essay

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economic recession, its impact on the markets, businesses both large and small, on the private and public sectors and its contribution to the unemployment predicament. It analyses the measures that should be employed to help businesses and companies achieve their corporate goals during this economic decline. With the diminishing operating budgets and margins by businesses, the paper identifies ways in which businesses can cut costs and yet meet their expectations. It goes ahead to look at which reward practices businesses should use at such a time that will not raise their operating costs to motivate their workers while focusing on maximizing on their returns and achieving their goals.

The economy goes through different cycles and, one of them is the recession. According to, Economic recession is a period of general economic decline; typically defined as a decrease in Gross Domestic Product (GDP) for two or more consecutive quarters. A recession is typically accompanied by a drop in the stock market, an increase in unemployment, fall in living standards, and business stop expanding.

The impact of an economic recession is widely felt on the market, businesses, private and public companies and also affects employment. As businesses sales and profits decline, the employers are forced not to hire more employees or even layoff the existing ones hence escalating the problem of unemployment. On the other hand, businesses are also affected and especially businesses that trade on major stock exchange. Also, in an effort to cut costs and to achieve its goals, the company may decide not to buy new equipments, hold back on research and development, cut on expenditures on advertising and marketing or even stop production of new products, something that will ultimately have an impact on the market. The cost cutting efforts have a direct impact on the market and the business itself. The situation also leads to escalating of prices in the market affecting wholesale and retail trade.

Both the private and public sector suffered the recent recession. In such a case, the private sector firms are forced to lower their break even points and the government to seek new sources of tax revenue. Both the sectors maybe in a dilemma on whether to retrench its employees and cause a big problem of the rise of unemployment due to high labor costs, high support program costs.

A supporter of Keynesian economics believes it is the government's job to smooth out the bumps in business cycle. Waldt (2004) says that the intervention to save both the private and public sector would come in the form of government spending and tax breaks in order to stimulate the economy, and government spending cuts and tax hikers in order to curb inflation.

During such a time of economic tough times, the company must reorganize itself in order to survive and work hard to achieve both their short- and long-term goals. The CIPD (Chartered Institute of Personnel and Development) report is helpful in this area. According to Dr. Jill Miller, the author of the report, he advocates especially at the senior level for a different style of leadership and direction during the tough times as opposed to when things are moving smoothly.

The management must act quickly to readjust the organization so as to reduce the effects of recession and maintain a robust organization. The findings of this report outline the requirements for clarity of purpose and a vision to work towards- a clear mission and vision. The leadership must lead with integrity while putting certain precautionary measures to avert severe effects and that the company may continue to achieve its goals.

In a time of recessionary, companies are forced to do more with less and thus the real issue is how to carefully pare away unnecessary costs while maintaining a robust organization. The company can use many ways to cut down the costs including, removing reward polices and practices, doing way with advertising and marketing, stopping buying of new equipments, curtailing research and development, reduction on expenditures on advertising and marketing or even stop production of new products, and payroll reduction.

Indeed payrolls costs represent a significant fixed cost, yet the base salaries comprising payroll may not necessarily motivate high performing employees to contribute at the level that the businesses need to succeed. Implementing a solid performance management program, which measures the performance of an organization or individual against predetermined criteria and goals, is a critical element to properly determining incentives awards and the competitive positioning of base salaries. (Workspan, 2009)

Indeed many companies are carefully analyzing their payrolls and human resources to drive programs and policies that can reduce their payroll expenditures and yet achieve corporate goals. (Cotroneo 2010)

Some of the ways that a company can achieve this is cutting down or reducing the employee's hours of working. Wilman (2010) agrees with this, that a company can resort to reducing the employee's hours of working in a day or the employer may make it a mandatory for every worker to take a day off without pay each week hence contributing to savings. (McWhorter 2009)

Shari in the Wall Street Journal article says that overtime hours simply come with more pay. However this cost can be minimized by eliminating overtime and those that want to do so should volunteer while knowing that there is no pay for the overtime.

Other means of payroll cost cutting include; the organization taking people who are on volunteer basis or college interns. According to the Wall Street Journal, the employer could also engage the employees by asking them to come up with money saving ideas. Whether it is reducing perks, giving employees a voice in the process makes cutting costs less painful. It is also good for a company access to information to make better decisions at such a time. The company managers should also monitor their monthly payrolls expenses to ensure they do not exceed budgets. This gives managers an opportunity to adjust staffing quickly instead of waiting until it's too late to make changes. (Cotroneo 2010)

The company must also devise a powerful management program which improves high performing employee engagement through a clear link between performance and variable pay in lieu of broad increases in base salaries. (Workspan, 2009) The management must ensure that the members engage in frank discussions with their staff for the overall success of the company. "Communication is important at all times, in tough times it becomes all that more important" says Rich Armstrong, president of Great Game of Business, Springfield (Mo.) a Consulting company. Armstrong says that candid dialogue eliminates distracting rumors and fears and foster team work. It is also imperative that the company establishes clearly differentiated award levels to celebrate the achievements of those who have gotten it right. The rewards should only go to those that have had an indelible mark on the company. And as the company does so, it should determine how actual performance, appraisals compare within and between departments and whether the program adequately separates high performing employees from others. Establish differentiated rewards for each level of performance. (Cotroneo 2010)

In order to attain strong financial performance, and cut down on the payroll costs, organizations should shift more of their compensation expenses to a variable cost basis by redirecting their fixed -- cost base salary towards incentive awards for the highest performing employees/reward practices. (Workspan, 2009) The total rewards investment likely represents the largest line item expense for most businesses. According to Distributor Performance Benchmarking Report (MHEDA, 2010), payroll and associated fringe benefits account for 54.5% of total expenses, and payroll costs are 1.2 times as large as other expenses combined.

However it is worthy noting that reducing pay and benefits does little to save business money, and can have a negative impact on morale and productivity. But reward systems do motivate performance. Employee reward system refers to programs set up by a company to reward performance and to motivate employees on individual and/or group levels. They are considered separate from salary but maybe monetary in nature or otherwise have a cost to the company. (Armstrong 2010)

Employers during this recessionary period should instead critically look at the benefits they can offer to motivate their employee's while ensuring that those benefits are producing the intended results and that the company realizes its intended goals. And this is producing a welcome wave of innovation in rewards and benefit programmes. Decision makers in companies must review what is essential and what's expendable. (Bragg 2010). The rewards can either be intrinsic or extrinsic. Intrinsic meaning that the reward cannot be physically touched, for instance training while extrinsic reward can be touched or seen by the eye, for instance money. So how do you motivate people? Let's use Herzerberg and Maslow's theory to discuss this with Toyota as a case study. Maslow places self-fulfillment (which concerns with full personal development and individual creativity) at the top of the hierarchy. In order to meet these needs an individual must be able to use their…[continue]

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