The Best Way to Shed Labour Cost, and Keep It Off
Curbing labour expenses is vital for cannabis firms looking to reduce SG&A, attain profitability and maintain competitiveness.
The traditional approach to reducing labour cost often fails to save money over the long run; at worst, it harms competitiveness by undermining morale and capabilities.
I’ve helped many firms with their labour cost reduction strategies. Here are a few learnings:
▶️ Wages unintentionally inflate over time
Wage inflation occurs when managers do not link pay increases to productivity gains, corporate results, or margin improvements.
Furthermore, many employees regularly push for higher pay if only to satisfy their sense of fairness and equity versus co-workers. Overly indulgent managers will accommodate these requests to maintain harmony or to look like a ‘hero’.
▶️ Pay policies gone wild
Complex organizations often have different starting salaries and bonus structures as well as mechanisms to control pay raises.
Where policies exist, they are regularly sidestepped by line managers; poor compliance is as much a management issue as it is about good process design.
▶️ Layoffs are driven by short-term thinking
The primary focus is usually on delivering on short-term “body count” targets.
Over time, these blunt plans will lead to a shortage of key skills, resulting in operational problems and eventually higher costs (when temporary workers or consultants need to be brought in).
Well-meaning efforts fail to produce enduring savings for one fundamental reason: broad-stroke tactics do not address the structural causes of high wage expenses.
There is a better way to shed labour cost.
My recommendations have delivered annual labour savings of 8-10%, with minimal impact on morale and operational performance.
My methods include:
1️⃣ Establish a compensation framework
Create a centralized set of policies and procedures to guide hiring practices and wage levels (including internal and external benchmarks). Ensure framework compliance is part of the performance management system.
2️⃣ Reset pay relationships
Align pay scales with clearly understood job responsibilities and categories. Establish pay ceilings, rate of increase bands & pay floors.
Make your expectations clear: better pay comes from higher performance and more responsibility.
3️⃣ Define impartial exit criteria
Determine criteria for culling staff including the importance of role, employee performance and available skills within the firm.
4️⃣ Retool exit strategies
Improve the design of severance packages to ensure that highly valued employees are not incentivized to leave. To retain key institutional knowledge, create a program whereby employees targeted for exit are given an option to stay at a reduced salary level.
Let’s talk. I’ll reduce your cost with minimal impact on your capabilities, culture, and growth prospects.
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