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Pinching pennies is all too often pound-foolish

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Via Financial Times

KPMG has breathed new life into the phrase “petty bean-counters” with a recent decision to cancel work mobile phones for hundreds of junior and back office employees.

The move by the British arm of the Big Four accountancy firm is part of a larger cost-cutting drive that will include letting go about 200 secretaries and personal assistants and telling partners to file their own expenses claims.

Few people would take issue with the need to keep down costs right now. Economic gloom is spreading worldwide with Europe and the UK looking particularly vulnerable. It emerged on Monday that global lender HSBC plans to axe 10,000 jobs and fund manager Invesco has cut 1,300.

There are also firm specific reasons to trim spending: KPMG, under pressure after a series of scandals, has told employees that the costs of the UK business were higher than others in its global network as well as UK rivals. The firm argues that the phone cull will encourage staff to separate working hours from personal time and says that employees who travel a lot or need to be contacted out of hours will not be affected.

Supporters of this kind of cost-cutting argue that such steps make a strong statement that the company really is serious about boosting margins.

When Charlie Ergen was chief executive of Dish, the US television provider took pride in being known as “meanest company in America”. It refused to reimburse tips of more than 17 per cent on restaurant meals and required employees to share hotel rooms on business trips. Mr Ergen followed the latter rule himself, much to the dismay of underlings who lived in fear of being his roommate.

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Portsmouth football club players have fond memories of its efforts to emerge from administration in 1998. Players were happy to give up their bonuses for wins and washed their own jockstraps.

But André Spicer, a professor of organisational behaviour at Cass Business School, warns that such symbolic cost cutting can easily do more harm than good. “A lot of the time, they undermine the purposes of what they are trying to achieve. People are much more attached to small things than large things,” he says.

Employees can understand why a company needs to shut down a division or a swath of near-empty retail outlets, Prof Spicer says. But take away the afternoon cake trolley or lock up the stationery over the Christmas holidays and managers risk real fury.

Uber recently discovered this when it stopped sending congratulatory helium balloons to employees on the anniversary of their joining. Chief financial officer Nelson Chai emailed staff to say switching to “Uberversary” stickers would save at least $200,000.

“It’s not only a great way to find dollars we can invest back into the business, it’s also more environmentally friendly,” Mr Chai’s message said, according to Crunchbase news. The savings are roughly equal to the salary of one senior software engineer or .004 per cent of the company’s $5.4bn operating loss in the second quarter alone.

Penny-pinching also backfires when it involves erecting new hurdles for costs — postage, local travel, etc — that used to be routinely approved. Bedding down new expenses procedures eats money and time, and distracts employees from core activities. This might be worth it if companies stuck to their guns, but often they drop the strict scrutiny once immediate savings goals are met.

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The gig economy has created a particularly nasty variation on bean-counting. Companies that employ contractors often refuse to provide them with the same safety equipment or even hot drinks. This not only deprives freelancers of basic benefits. It also bolsters the company’s case that they are contractors and not entitled to the same benefits and tax status.

The underlying problem for managers may be that the burdens of cost-cutting are rarely shared evenly, as a 2012 study published in the American Sociological Review revealed. It found that efforts to automate, reduce bureaucracy and eliminate waste have historically been associated with rising numbers of managers and increased manager pay.

Rather than fostering solidarity, symbolic cost-cutting all too often translates into something far more divisive: employees feel the pain while executives and managers reap the profits.

brooke.masters@ft.com

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