Motivating employees after cuts

It’s not easy to lay off workers and then keep the survivors motivated.

It’s also not easy to decide whether you freeze wages —- allowing more employees to keep their jobs —- or raise pay after making deeper cuts in the work force.

To try to get a handle on these gut-wrenching issues, which many managers are tackling today, I talked with the CEO of Georgia’s largest company.

How does Frank Blake decide what to do at Home Depot, which has 300,000 employees?

Blake, who became chairman and CEO after Bob Nardelli left two-and-a-half years ago, has had to refocus and reorganize the world’s largest home-improvement retailer. With a housing debacle biting into revenue, he also has cut 10,000 jobs, while trying to improve customer service and employee morale.

“You can’t expect great customer service if you don’t take care of your associates [employees],” Blake, 59, said. “It’s all about how you treat people.”

Nardelli was not known for his soft touch, to say the least. Founders Bernie Marcus and Arthur Blank were passionate about inspiring the troops.

Blake, taking a cue from the founders, said he believes the most important person in the company is the one wearing the orange apron. But how does he show that —- financially —- in a retail environment like this one?

Blake does not believe in freezing employee salaries to keep more workers on the payroll.

“I have a strong point of view that you structure your company for the business that’s there, and then you treat your associates well,” Blake said. He would much rather have “80 pleased and confident” employees than “100 moderately disgruntled” ones.

Others disagree, believing it can pay to hold on to more talented people, in part by freezing salaries in the short-term. There can be a direct relationship between the number of employees laid off and the depth of the decline in morale.

To try to motivate employees, Blake cited a few important incentive programs, including:

Success Sharing: Given the troubled economy, the company lowered the threshold for this bonus program for hourly employees and some supervisors.

That increased the payout. For its last fiscal year, $88 million was paid out. That compared with $63 million in fiscal 2007 and $25 million in 2006.

Restricted Stock Grants: Two years ago, Home Depot resumed giving these grants to assistant store managers. There are 7,000 in the U.S.

Homer Badges: The company also relaunched this program two years ago. It recognizes employees who consistently demonstrate model behaviors, such as exceptional customer service. Since 2007, nearly $12 million has been disbursed.

These are not panaceas. But incentives can boost motivation.

That brings up another issue: Does Blake think his rewards —- total compensation of $9.2 million last year —- will sap morale?

No, he said. His compensation rests on three principles:

Most is dependent on how the company performs. His base salary was $1 million, while stock and option grants were estimated at $7.8 million.

Secondly, he said, “My compensation is in line with my peers.”

And perhaps most importantly, Blake has no severance package.

Once again, Nardelli’s $200 million deal casts a long shadow.

Visit Henry Unger’s Biz Beat blog on ajc.com/business. His e-mail is hunger@ajc.com.