Jeff Ciarrochi had hoped to avoid laying off any employees this year. But when the president of Philadelphia-based Armond Aquatech Pools began discussing wage reductions with his staff, their response was unexpected.
“They asked to be laid off at that point,” Ciarrochi says, “even though the diminished salary was still way higher than unemployment [benefits]. So I said, ‘OK.’”
The economic downturn has meant particularly tough times for the construction industry, and most builders have been unable to support their full staffs. Some, however, have kept their workforce on board through cutting other costs.
Here, we examine the reasoning behind both alternatives, and look at how variations of each one played out for some of the industry’s top builders.
The unavoidable decision
No employer wants to be put in the position of selecting which employees to let go. Still, thousands of company owners had no choice but to make significant cuts.
“The line items on a financial statement are predominantly made up of wages and salaries,” says Bruce Dunn, president of Mission Pools in Escondido, Calif. Once an employer factors in health insurance, workers’ compensation and other staff-related incidentals, even productive employees can become a heavy load to carry.
Dunn chose to make strategic staff reductions in a few departments. For instance, Mission no longer has a front desk receptionist; instead, accounting staffers, who sit near the phones, answer calls and greet customers. Dunn also implemented an across-the-board pay cut, allowing him to retain as many employees as possible.
“We’re a vertically integrated business: We basically do everything ourselves,” he says. “So part of what we’ve done is to really stress cross-training.”
Dunn encourages members of his construction crews to develop multiple skill-sets; this means the number of staffers suitable for a type of job can grow steadily, even without new hires.
Once they made staffing cuts, Ciarrochi and Dunn’s margins began to improve.
“Now, moving forward,” Ciarrochi says, “I realize it was kind of a blessing in disguise. Even with the diminished salaries, it would’ve been a strain to try and keep [those employees] on. We’re better on the books now, in terms of maintaining operating margins in the face of lower sales.”
Accepting the struggle
For other companies, the choice was different but equally clear. Michael Shammas, president of Chesapeake, Va.-based Aegean Pools, decided to keep every one of his employees on staff. Shammas knew he’d have to reduce salaries, and cut other costs; but, he says, these steps are just part of a long-term strategy.
“We don’t expect the bad years to last forever,” Shammas says. “This way, as years get better, we don’t have to go through company rebuilding struggles; and at the same time, we show loyalty to staff who have been with us for a long time.”
Shammas reduced Aegean’s bid prices, but only enough to ensure a steady roster of projects. Keeping his employees and subcontractors busy, Shammas says, was key to keeping his company running this year. “Our profit margins were down,” he says. “But the company operated smoothly. And since we’re used to [building] a lot more pools, we actually had an easy year.”
While lowered prices have brought in customers for some builders, others have focused on spreading out costs and offering strategic discounts. Claffey Pools is based in Southlake, Texas, near Dallas, a market that hasn’t been hit as hard as some other areas. Company president Charlie Claffey has retained every member of his staff.
“We made a conscious decision that we were not going to cut employees, and it was painful,” Claffey says, adding that entering into exclusive partnerships with local subcontractors enabled him to distribute project costs more effectively. This allowed him to provide lower prices, and even special discounts, to his construction customers.
Retaining every employee has stretched many companies’ budgets; but for Brett MacNally, co-owner of Performance Pool & Spa in Woodbury, Minn., a staffing increase was the key to jump-starting his business in the recession.
The board members at Performance saw the problem from a unique angle. “[We were] asking, ‘What’s going to happen if we don’t have these people, and we need to find them?’” he says. “So we actually upsized. We picked up some great people for next to nothing.”
Though Performance’s new construction sales remain lower than in previous years, its service and renovation departments, retail stores and landscape division all report steady sales as a result of the hirings. MacNally attributes these successes to his hard-working and knowledgeable staff, many of whom were pulled straight from the unemployment pool just before they left the area.
“We could quite possibly be up this year from two years ago,” he says. “Even if [the recession] doesn’t turn around, we can see the numbers, and we’re good. We see ourselves as uniquely positioned, and I think we’re about to be one of the top companies in our market.”
Regardless of a company’s decision concerning staffing cuts, one thing is clear: Deep reductions in expenses are in order.
Because he retained every one of his employees, Claffey drastically reduced the salaries of his upper management and ownership staff, allowing his company to make more modest pay cuts for lower-level workers. To compensate for those cuts, Claffey launched a company-wide profit-sharing plan. “And I will be shocked,” he says, “if everyone who took a salary cut doesn’t end up making more money this year.”
But, Dunn says, it’s just as important to plan ahead in profitable years as in tougher ones.
“Anybody who owns a business should have the benefit of good times,” he says, “but hopefully in those good times, you really do consider the fact that you need to diversify your portfolio.” By investing in real estate and avoiding debt, Mission’s owners built up a financial buffer long before the downturn began. “We own all our own buildings,” Dunn says, “and we don’t owe anybody any money. We don’t even owe anything on a line of credit. In the last 14 or 15 months, we’ve taken next to nothing out of the company. We salted it away for a rainy day, and it’s pouring right now.”
Even companies that didn’t invest heavily have found ways of gaining more profit. When the recession began, most of Performance’s customers hadn’t signed up for a pool maintenance plan. Where many might find disappointment, MacNally saw opportunity: His team personally called every customer — more than 5,000 of them — and extended special offers on maintenance plans. “You can’t believe how much time it took,” MacNally says, “and you can’t believe how much it was worth it when they went crazy for it.”
A similarly customized idea occurred to Michael Shammas; but instead of offering a new service to his customers, he asked them for a favor.
“I offer my customers an extended warranty if they give me [and my team] a full performance evaluation,” he says. The detailed survey covers every aspect of construction and service, from how Aegean’s staff presented themselves to how the work was conducted. The response level has been high, Shammas says, thanks to the warranty offer. And when the market improves, he and his team will have a custom-designed set of operational standards to take into the field.
Creative tactics aside, there’s one guiding principle on which every successful company can agree: When in doubt, focus on building customer relationships. “The truth of the matter is, sales experience has a lot more to do with relationships than it does with price,” Claffey says. “If you do a good job, people are willing to pay a premium.”