The fear of economic downturn can make companies reluctant to enter into any kind of commitment (don’t worry, this won’t deteriorate into some sort of relationship advice… I think). They don’t want to commit to their employees, by stopping bonuses, canceling pay-raises, ‘no-motions’, and sticking to temporary contracts only.
When seen as a matter of risk-management this can readily be understood: limit expenses, and make sure it won’t be too problematic to get rid of any of your employees, should the necessity arrive. But if we look at these practices from the viewpoint of building a sustainable company other considerations should be taken into account.
How do you build a company? Looking at the current share-price and what is of influence on it, and trying to decrease cost and increase profit margins? Yes, you do need to keep an eye on those. But if you intend your company to last for the longer term, it can be very dangerous to limit your focus to only those short-term goals. Especially the type of modern company that is built on knowledge and innovation should not see their employees as a cost factor, but as capital. You try to reduce costs, but you want to increase capital. Neglecting the needs of that capital, especially in economically uncertain times, can mean that you erode the basis on which your company is built.
Of course, monetary incentives and job-security are not the only ways to build a sustainable relationship with the people working in your company. They are not sufficient. But again, especially in an economic downturn, they are a necessary minimum investment.
So what happens when we forget to pay attention to the relationship between a company and its people? Uncertainty, unrest, reduced productivity (and brain damage, according to Ron Burk), people leaving, knowledge draining. In other words: erosion of capital.