Empty Desk Syndrome

How to handle a hiring freeze.

If you've been binging on new hires in the past few years, now may be the time for a hiring freeze -- the HR equivalent of a postholiday diet. Freezes are often reactive, used as a cost-cutting measure when orders slow, and they can send a chilling message to customers, suppliers, and employees: We're in trouble. But freezes don't have to send dire warnings of imminent despair. In fact, they can be a way for business owners to take a break and retrench, even when times are good. If CEOs stay calm and communicate with their employees, they can make it through freezes with minimal disruption to business or morale. Below, four tips for CEOs who are planning to keep some desks empty for a while.

PriceSpective, a consulting firm that works with pharmaceutical clients, has been growing steadily. Steve Slovick, the company's CEO and co-owner, expects $12 million in revenue this year, up from $7 million in 2007. In December, however, Slovick and the company's three other owners put the kibosh on hiring in the company's Philadelphia headquarters. Sales had slowed, so Slovick couldn't justify hiring the four or five consultants he had been hoping to add to his team.

The firm's 30 employees took the news in stride, because hiring freezes at PriceSpective are not unusual. The four owners meet with senior managers once a month to discuss whether they have the right number of people in place. Workers have come to expect the company to stop hiring two to three times a year, for at least a couple of months, at any office where sales are slow. (PriceSpective also has offices in Los Angeles and London.) Managers and HR staff always make sure to discuss hiring plans with employees. Maxim Miller, a senior analyst in the Philadelphia office, says he gets busier when there's a hiring freeze but doesn't complain. "You have to take a view from the mountaintop," he says. "You can't just focus on the immediate needs of each office."

Slovick says he saves about $11,000 a month for each consultant job he leaves unfilled. "If I slow my hiring just by a few people a quarter, that has a marked impact," Slovick says. "People represent more than 60 percent of my expenses."

Keep talent in the pipeline at all times so you can staff up quickly if there's an influx of new orders, says Jana Matthews, a Boulder, Colorado -- based management consultant. Slovick relies on a national network of recruiters who are constantly looking for candidates, even when PriceSpective can't bring them on right away. Almost one-third of PriceSpective's employees have Ph.D.s in scientific fields, and those highly educated workers are hard to find. And Slovick knows that business could pick up at any moment. The Philadelphia freeze, for example, ended after just two months, when a burst of sales in February and March resulted in a flood of work.

One thing to keep in mind, says Matthews: When you interview candidates during a freeze, give them an idea of when you will be making decisions. That way, if the candidates don't hear from you, they won't assume they have been ruled out.

Maybe you don't need as many employees as you think you do. Executives at Studeo, an advertising agency based in Salt Lake City and Irvine, California, discovered that during a hiring freeze about five years ago. After losing a major client, the company laid off 15 people, bringing its head count to 50. The two owners, president Dave Allen and CEO Todd Shepherd, then decided to keep a tight rein on spending by imposing a hiring freeze. Within six months, the company had won two new accounts. But the owners realized they didn't necessarily need to boost head count to grow. When a new client comes in, Studeo now bulks up with freelancers as an interim measure before deciding whether to add any permanent positions. And it has started billing more of its clients on a commission basis instead of charging an hourly fee, which has made the company much more profitable. Studeo has almost tripled its sales since the freeze, from $12 million to $32 million, even though it now relies on only 45 full-time employees.

The last thing you want is low morale on your sales team, says Dennis J. Ceru, a professor of entrepreneurship at Babson College and president of Strategic Management Associates, a consulting firm in Wellesley Hills, Massachusetts. So you should fill empty sales positions, even if you're not hiring elsewhere in the company. In fact, you may want to consider adding more sales reps to your staff. "If you're in a difficult cycle, then yes, there has to be some tightening," Ceru says. "But you want to do everything you can to generate revenue."

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