John Radford's View

In 1975 John Radford had just graduated from the Stanford School of Business. His brother Steve Radford was working in the compensation department at Fluor in Los Angeles, developing computer applications for handling salary and employee data. The brothers saw a business opportunity in Silicon Valley, where new companies and industries would soon be needing compensation related services such as surveys and data analysis. They pooled their talents and founded Radford Associates. The company grew to become the top compensation survey provider for the technology industries. Today Radford Surveys + Consulting (now a division of Aon Consulting), where John serves as Senior Vice President, counts among its clients over 1,400 high technology and 600 biotech companies. John is a member of the HR Forums Advisory Board.

The interview was conducted on January 21, 2009.

Aryae: What are the big changes and the big differences that you're seeing among your clients right now in this economy?

John: First and foremost, everyone is being affected by this current economic credit crisis. But it's happening in different ways.

For example, if you're in the semiconductor segment, and you were a CEO midyear last year, you were forecasting for a certain set of revenues for the fourth quarter 2008 and for all of 2009. Well, somewhere around September or so, the bottom fell out of consumer demand. Companies decided they could live with their inventories. Most semiconductor companies dramatically missed their fourth quarter forecasted revenue. That made all of 2009 totally inoperative in terms of a plan. So in that particular segment you're seeing layoffs, salary freezes, even salary cuts, and CEOs and top management teams just trying to get some sense of what 2009 will really bring.

There's another segment of companies in life sciences. There are over 300 public biotech companies that do not have enough cash to make it through the end of the year. They were forecasting R&D expenses with the strategy of accessing further credit to support their business plans, and that credit has dried up. It's not that they had misforecast or didn't have solid plans in place. It's just the lack of credit.

Then there are all sorts of companies in between, some of which are doing better than others, lots of which are looking at reduced revenue forecasts for 2009, and numbers of companies laying off employees. So right now it's a broad based phenomenon, although in different sectors you see different types of issues.

Aryae: With the semiconductor companies, why do you think that CEOs and top management were so blindsided?

John: I actually know one of these CEOs personally, and we're good friends and spend a lot of time together. There was such a dislocation in consumer demand. Meaning that so many companies that buy chips saw that their forecasts for the third and fourth quarter, and for 2009, were going to be way off in terms of what they could actually sell. So they just cancelled their bookings. They said, "All those chips that we were forecasting, you know, that we were gonna buy? Well we're just not gonna need 'em."

For example Intel's revenue, fourth quarter compared to a year ago, dropped a whopping 23%. That type of drop we've haven't seen in a numbers of years. I don't think that people who are outside the industry appreciate how quickly companies that consume chips can not only turn off the spigot, cancel future orders, and leave semiconductor companies just absolutely stunned in terms forecasting future demand.

Aryae: What's your picture of the size of the layoffs that will be coming in that industry this year?

John: There are a couple of different ways to do layoffs. If your business has been dramatically downsized in terms of revenue opportunities, you've also got to downsize it in terms of people you need to get the work done. So I think we're seeing across the board, five, 10, 15 percent reductions, and obviously there could be upwards of 20 or 25%, although hopefully that won't be the case. We're doing our first quarter summary of industry trends where we're getting exactly that information, asking companies exactly what was the size of their U.S. workforce layoff reductions, so we're beginning to pick that up.

But sometimes it comes in waves. So you lay off some, hoping that's enough. Then you get into the next level and realize you need to go deeper, and so on. Also a number of companies, and very rightfully so, were worried about laying people off before the holidays so we are seeing a real pickup in layoff announcements in January

In the U.S. last year we lost 2.6 million jobs. There are some people, though I don't know if I completely agree with them, who are forecasting that we could lose as many as two million more jobs in the first quarter. I don't think we really know how bad the layoff situation's going to be yet until we get a little deeper into this quarter. But clearly 10, 20% are numbers that companies are announcing left and right.

Aryae: It sounds like some companies are going to have to decide, do we do the layoffs gradually in waves, or do we try to be more aggressive and do it all at once?

John: That's a tough decision. I think companies, if they know they're absolutely going to need to lay the people off, they're going to do it all at once. If they're hoping that maybe there may be some uptick in their prospects, they may try to do it in a series of timed layoffs, hoping they don't have to go all the way to the third or fourth layoff. But you've got situations where people just don't know.

Now in the biotech industry, they've got expense burn rates, they have no revenue, and they know how much cash they have left. So certain biotech companies are just cutting to the point where, here's the money we've got, and here's our run rate. We've got to square that up, regardless of how many people we need or don't need. So they're in a different situation.

Aryae: So does that mean that some biotech companies are saying, we're mostly going to shut down operations until the situation changes?

John: We've had a couple of our clients that have laid off 60, 70, 80% of their work force, and announced they're looking for a buyer. That type of thing. So, yeah, there are those types of companies out there.
Aryae: On the high tech side, what do you see happening to salaries?

John: Right now, that's kind of like the $64,000 question. That's what we're asking our clients: are you reducing your salary budgets? Are you going into salary freezes? Are you delaying increases? Are you even cutting salaries, like several companies have? There are going to be a significant number of companies that do not deliver increases this year. Some will give any targeted increases to a very small group of employees, say 15, 20%. There's going to be another group of high technology companies that will deliver salary increases, but instead of in the 4% range, maybe they're going to be in the 2 to 3% range. And then there will be a few companies that are in pockets of stability and revenue growth, and may continue with 4 plus percent on their salary increase budgets.

Right now a lot of HR executives don't really know what the answer is, because they haven't gone to their compensation committees yet and gotten final approval for whatever they can and cannot do. So more to come. Decisions are being made daily in terms of what's going on out there right now.

Aryae: Is anyone actually talking about salary reductions?

John: We've seen three or four companies that have actually made salary reductions across the board. And there are a number of companies that have either frozen executive salaries or actually cut them by up to 20%. For now that's the exception rather than the rule, but it's certainly out there.

Aryae: This is all a pretty dramatic picture. Are you seeing any pockets of opportunity and hope out there?

John: Well, there are still a lot of companies related to the Internet that appear to be doing well. And in the alternative energy sector -- although some of these companies have gone through layoffs too – are some pretty well funded ventures, and they're continuing to move forward. And some of the larger biotech companies that have good pipelines of solutions to a wide variety of diseases are doing very well. And IBM in the professional services industry has announced a reasonably good end of 2008 and a stronger forecast for 2009 than people expected. So it's not all bad news, because there are certainly companies that are in better positions than others.

But there is a general contraction continuing to go on. And we have not worked through this yet, so we'll just have to see how it turns out.

(pause) What can you use with all this? I'm sorry I'm not very optimistic. (laughs)

Aryae: Well, with this blog I'm trying to provide a story of what's really going on out there, both the pain as well as the hope and opportunity. So as you say, we'll have to see how it turns out!

Inauguration Day

I am grateful to have lived to see this historic moment. Today is a time when all Americans, in the words of our new President Barack Obama, can "recognize ourselves in one another and bring everyone together — Democrats, Republicans and independents; Latino, Asian and Native American; black and white, gay and straight, disabled and not." We may forget all this later in the crush of our daily lives, but for now, at this moment, we can look around us and remember.

We in the human resource community, and especially those of you who run the human resource functions at your companies, have a special view of the Inauguration. Every day you stand in the place where the stakeholders in your company – shareholders, customers, suppliers, communities, and regulators – meet the working people who make it all happen.

These people who walk through your doors each morning are the same people that President Obama spoke of over the weekend, "who ask only for what was promised us as Americans — that we might make of our lives what we will and see our children climb higher than we did." And every day you must do what you've always done – work to create an optimal environment for them to deliver on the promises that your company has made to its stakeholders.

As a new administration takes office today, the stakes for our nation, our companies, and our families have never been higher. I believe that we in this community, at this time, by continuing to share knowledge and experience, wisdom and hope, can strengthen ourselves and each other in doing the work we do, and its positive impact on the lives of many.

Please share your thoughts on this day by commenting below.

Resiliency and Opportunity

Greg Pappas is Vice President, Human Resources at CyberSource, an ecommerce payment management company. He is a member of the HR Forums and the HR Forums Advisory Board.

Greg: We've actually had a phenomenal year this year. eCommerece continues to be a strong market segment and while consumers have slowed their spending, they continue to use the Internet as a cost effective and practical way to purchase products. eCommerece experienced an uptick in transactions when the price of gas was really high; people gravitated more to eCommerce. They felt more and more comfortable and secure with it. You don't have to drive. You don't have to fight the crowds. And you can ship things all over the world.

The average transaction amount has been lower for all the retailers because of all the heavy discounting. But we've actually had a record volume. One great example of how ecommerce is growing is the explosion of online music over the last couple of years. iTunes is now the biggest music store in the world. Now it's $.99 you know, it's not a huge purchase, but it adds up, and it's all online. Small transactions, big volume.

I'm in a unique situation as VP of HR at Cybersource because we've got a great story unfolding and we still think it's kind of in its infancy.

Aryae: What are your hiring plans for this year?

Greg: We did the majority of our hiring in 2008, but we do have plans to grow our headcount this year.

Aryae: As far as you can tell, what's the mood these days among your employees?

Greg: I think most employees are feeling really good about our company and what we're doing. We have a company wide bonus program that we pay out in January and there is a sense that we will pay out some kind of bonus for our 2008 performance.

I think I'm a good example of how new employees feel about our company. There were a few companies I was considering after [my last company] was acquired and I tell you, I'm happy as heck that I chose Cybersource. I think most employees share how I feel. They're in a good, good business and have the opportunity to work in a great environment.

Now on the other hand, I think everybody here at Cybersource has been impacted by the economy, by the stock market. Everyone's net worth has been hurt. Everybody has friends or relatives who have been laid off, or knows of somebody that has been laid off.

I think in general when we have these conditions everybody goes to Maslow's hierarchy of needs, right? Do I have a job? Can I put food on my table? Do I have shelter? And then hopefully we get some job satisfaction and career growth.

Right now I think people are thankful that they have a job, that they have a good place that they come into work, that the company is being successful, that we're not looking at pay cuts. But people here are not naive. They read the papers just like everybody else. I think that definitely weighs on them.

Aryae: Are you doing anything different in terms of communicating with employees than you might have done in a previous year?

Greg: I think in these times you need to magnify communications. I'm having more and more focus group meetings. We're having a company wide kick off this Friday. We used to do annual performance reviews. Everybody is now on a quarterly review process. We've modified our quarterly all hands meetings to ensure the important things are being addressed. Our CEO is starting to send out monthly updates and raise his visibiltiy. And me as the VP of HR, I'm making myself more available, going out to the various sites, having breakfast meetings, and roundtable discussion to get a sense of what the issues are. Making sure that management is visible and available is a critical role for HR.

We set up an anonymous email question system when I first got here, and we've been getting some really good questions. We publish those on a monthly basis. That's really helped. You know, people get brave when it's anonymous. We get some pretty tough questions. When you answer those and don't dodge them, you create credibility.

And then each department has an all hands meeting when they have a major milestone that's been accomplished, so we continue to do those things.

Some of this stuff is basics. But basics are very powerful. I've always been a big fan of keeping things simple and not getting too complicated. I think that sometimes less is more in terms of the complexity, but I do think in these times frequency is really important. Management being visible is really important.

Aryae: When you get together with the senior management team, is there a sense of when the economy and the business are going to start turning around?

Greg: Yeah, we kind of think, the general kind of mood is, Q4, going into Q1 of next year. I mean the good thing is, we've been in this thing for a year, right? But we don't have a crystal ball! We're being very optimistic yet cautious.

A perfect example is our company wide kick off this month. Our theme for 2009 is "Resiliency and Opportunity." We have to be resilient because things can get worse and we have to be ready for that. But we also think this could be a year of opportunity where we can win some business and grow our market share, so we want to be more aggressive on that end.

Bread and Butter

It's chilly and damp early the in morning as I drag our garbage can to the curb on garbage pick-up day. Across the street Bob, who has just brought out his garbage, is standing outside his van, in his jeans, work boots and leather jacket, organizing some stuff inside, getting ready to go to work. He's an electrical contractor, wiring houses and small businesses here on the coast and in other parts San Mateo County. Bob's wife Sally teaches part time in the local school district. They've got a kid in high school and one in college.

I cross the street to say hello.

"How's business these days?" I ask Bob.

He smiles and shakes his head, then looks up at me. "You know, Aryae, I'm very fortunate. We have a customer base that we've built up over many years that's very loyal and still keeps doing business with us. What we provide is pretty basic; when you turn the switch, you want the lights to go on, right? But for us so far, we're still keeping bread and butter on the table." He smiles and gives me a thumbs up sign.

"Where are you seeing your best opportunities right now?"

"You know," he says, "I'll tell you something interesting. Where we're seeing new activity is with high end jobs on expensive homes. I don't know why that is. Not much is going on in the middle and lower end of the market. But it seems that people with lots of money are shaking some of it loose."

He closes the rear doors on the van and walks around to the driver's side. "The job I'm going to today is a $250,000 kitchen remodel."

"Well, good luck on that one!" I say.

He looks at me a minute before opening the door. "You know, I honestly don't know how the other guys around here are doing, the ones that haven't been around as long as I have. But so far I'm doing fine." He gets into the van, rolls down the window and starts the engine. "No dessert, mind you, but plenty of bread and butter!" He smiles, waves and drives off.

Please share your story of hope and opportunity in the economy of 2009.

New Years Day

The New Years Eve parties in my neighborhood seemed quieter than usual this year. But when my wife Wendy and I went to a local club to sit at the bar and hear some music, people were cheerful and friendly. Was this a calling card for 2009, reminder of a year slouching into our lives with a murky mixture of dread and hope?

I spent the last work days of 2008 doing what I normally do at this time, looking over the past year's business results for the HR Forums and thinking about plans for next year. The bad news: revenues for the 4th quarter were the lowest in years. The good news: our members, at least some of them, seem more engaged than ever in the opportunity at our events to talk to each other to about responding to the challenges facing their companies, their employees, and the workplace.

So what am I supposed to do with this paradox, this business "crisis" composed of "danger" and "opportunity?" Isn't this question for my tiny business essentially the same one facing the much larger businesses of our members, and businesses all over the world?

On the personal front Wendy and I each took a deep breath, overcame our resistance, and had our "kitchen table" conversation about family finances and plans for the next year. What's the contingency if our family income drops? Where can we cut expenses if we have to, while minimizing the impact on the richness and fullness of our lives? And in what new ways do we want to involve ourselves in being of service to others?

This blog will be a chronicle – through the course of 2009 – about companies, workplaces and people who work. I will be interviewing Bay Area HR executives, other executives, and ordinary working people to ask them where they are finding hope and opportunity during this economy of 2009.

We are now open for comments from HR Forums members and others who would like to jump in and join us. If you'd like to offer your perspective, or know someone who would, please comment here or let me know.

With best wishes for a year of hope and opportunity!