The Landmines of Layoffs

Edie Goldberg
Posted: 01/07/2009

As many companies turn to layoffs as a means to reduce expenses during these turbulent economic times, there are many landmines to be aware of so that you do not inflict more damage to your company’s ability to navigate this storm, as well as the next.

Layoff Landmine 1—Lack of Employee Productivity

Before a layoff happens, as well as after, employees spend a lot of time wondering "What is going to happen to me?" "Will our company survive this economic downturn?" and "What will happen to my friends who have been laid off?" In short, productivity will slow to a crawl as employee deal with their concerns, frustrations and feelings of betrayal. There are several ways you can help stem the employee productivity nose dive:

  • Make sure you communicate information to your employees in a timely manner. Even if you don’t have all of the answers, employees would rather hear more from leadership during turmoil then less. If the future is uncertain, say so; and commit to communicating with employees openly within a reasonable timeframe. Be honest with employees and don’t sugar coat the facts—employees are adults and they can handle it.
  • Practice employee engagement by keeping employees focused on what the company needs to do to survive this storm. Do your company goals need to be updated in light of the recent economic downturn? Do employees have a solid understanding of the company’s business strategy and what they need to do to help you be successful? Re-engaging in conversations regarding the business strategy and what employees can do to help you succeed plays a strong role in employee engagement.

Layoff Landmine 2—Rise in Voluntary Turnover

A recent study from the Academy of Management Journal found that the larger the percentage of employees laid off in your organization, the larger the actual turnover rate. So if the average turnover rate for an organization is 10.4 percent, a company that lays off .5 percent of their workforce is likely to see a 13 percent voluntary turnover rate; whereas when you lay off 10 percent of the organization, your voluntary turnover rate is likely to increase in the voluntary turnover rate to 15.5 percent.1 The major concern here is that this increase is from the employees you wanted to keep—your best performers. So what can you do? Here are a few suggestions for minimizing unwanted employee turnover:

  • As mentioned above, employee communication is a critical issue. Not knowing what is going to happen is the biggest cause for employee anxiety and job search activities. Employees try to hedge their bets and find a new job if their job might be at risk. If you have experienced a layoff recently you need to work on re-engaging employees by sharing your vision for the future and your business strategy for success, then tell them what they can do to help realize the plan.
  • Make sure your managers are communicating to your employees how valued they are and that their jobs are not at risk. (But only if this is true!)
  • Building stronger relationships between managers and employees provides a strong glue that holds people to companies even during difficult times. Now more than ever managers need to be talking to their employees, discussing their concerns, showing support and helping employees succeed.
  • Several human resources practices help to create stickiness to a company and are likely to reduce an employee’s propensity to voluntarily leave the organization: defined benefit plans, sabbaticals, on-site childcare, flextime, telecommuting and hiring for organization fit (to the company’s culture).

Layoff Landmine 3—Employer Reputation

How you handle your layoffs says a lot about how you value your talent. In today’s world where company alumni groups have been a powerful resource for identifying potential new candidates, it is important to respect every relationship, even when parting company. In recent years there have been some major missteps and some major wins in company reputation when dealing with layoffs.

Employer Reputation Missteps

In 2007 Circuit City Stores instituted a "wage management initiative" whereby they laid off 3,400 experienced employees and replaced them with lower-cost, less-experienced employees. Not only did this spark a lot of negative feelings about the company, but it also resulted in age discrimination lawsuits. It is not a big surprise that they have recently filed for Chapter 11.

Another employee layoff misstep happened in 2006 when Radio Shack notified 400 employees by e-mail that they were being laid off. Although they reportedly chose this method out of respect of the privacy to employees who shared cubicles with others, this clearly was a huge, insensitive mistake. It is imperative to talk to employees face-to-face when laying them off so that employee questions can be answered right away and the employer can express empathy for the necessary layoff.

Enhancing Employer Reputation During Difficult Times

In contrast to the employee layoff missteps that some companies have taken, other companies have done right by their employees and communities while taking action needed to ensure the organization’s success. In the 2001 dot-com crash Cisco Systems offered to pay partial salaries to laid-off employees who worked for charities/non-profits. This reflected positively on the organization as they connected with their community while taking the employment actions that were necessary. During a similar time period, Charles Schwab provided funding to support a portion of tuition reimbursement for laid-off employees. Supporting employees during their transition is one key to making stayers and leavers feel better about how things were handled by the organization.

Layoff Landmine 4—Forgetting the Layoff Survivors

Whatever resources you put in place to help employees who are laid off, this amount of effort should also be given to supporting the remaining employees to help them adapt without their peers and have confidence in the company’s future. Layoff survivors often feel guilty for coming through the layoff—they are resentful and angry over those employees who were let go, and they feel betrayed by the organization. These feelings must be openly addressed and processed for people to move on. Give employees a safe forum to express their feelings. This may take the form of a group meeting, facilitated by an experienced human resources professional, where employees are encouraged to ask questions and express their concerns. In addition to these meetings, human resources managers should simply spend more time walking around and talking to employees following a layoff. It is important to stay in touch and address any employee concerns quickly.

By helping employees understand how the organization is supporting those who have been let go (e.g., with severance pay, outplacement, etc.) the organization can create a greater perception that employees have been treated kindly and fairly. This serves to reduce some of the negative feelings associated with how their friends were treated during the layoff.

The most important step you need to take with the remaining employees is giving them a new reason to stay with the company. You need to lay out specific plans with timelines so that employees know what to expect and have confidence in the company’s ability to make progress. If you don’t have a clearly articulated business strategy to help you survive in the future, how can you expect employees to hang around and wait to see what happens? Sharing your vision for the future and your plan to survive this difficult economic downturn is essential.

1Trevor, C and Nyber, A.. (2008) Keeping Your Headcount When All About You Are Losing Theirs: Downsizing, Voluntary Turnover Rates, and the Moderating Role of HR Practices. Academy of Management Journal, April/ May, pp. 259-276.

First published on Human Resources IQ.

Edie Goldberg
Posted: 01/07/2009

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