Effective Layoffs: How and When To Do Them

Layoffs are coming…layoffs are coming. We all know that it’s true, but few firms really want to confront the layoff issue until it’s too late. When they do start, most firms don’t really know how to do them right or when to begin layoff planning. I’m secretly a layoff strategist (you can’t really advertise such a skill and keep many friends).

It’s not something I like to do, but I’ve found that if you wait too long, you’ll end up having to layoff two employees down the road, whereas if you would have acted quickly, you could have limited the layoff to just the one.

Regardless, if you are a recruiter looking to stay employed in slow times, you might want to consider building your skills in this “hot” area of HR. The first step in doing layoffs is to become an expert in how to do them well (and in why they fail). There isn’t a wealth of publicly available resources in this area, so in this and the following articles, I’ll give you an overview of how effective layoffs can be done.

Why Do Layoffs?

Companies conduct layoffs for a variety of reasons: the most commonly cited being cutting costs and raising stock value. Some companies are successful in meeting their goals, though most are not. Some do it just to be able to say they did something.

But there’s a good deal of data demonstrating that poorly planned layoffs do not always save the company money or increase its stock price. You can avoid most of these failures by doing your research and closely following this template. Commonly cited reasons companies undertake layoffs include:

  • Cutting overall people costs (thereby increasing margins)
  • Reinforcing a firm’s image of strength among analysts, stockholders, funding sources, suppliers, or customers
  • Increasing the firm’s stock price
  • Changing a company’s cost structure to prepare for upcoming market or economic conditions
  • Changing a company’s (or division’s) cost structure to prepare for a merger or sale
  • Reducing the size of low-performing or slow-growth departments or divisions
  • Dropping low-performing employees or managers
  • It’s an excuse to drop “problem” employees without confronting them
  • Making the firm more attractive for a buyout or merger
  • It’s an opportunity to replace employees with lower cost or more capable technology
  • It’s an opportunity to close a plant or facility that might be harder to close (politically) in “better” times
  • It’s a way of “defusing” union activity by shocking employees into expecting less
  • It sends a message that the company is “doing something”

Layoffs are often seen as a way to drop “excess” employees. In this case, excess can mean:

  • More employees than current sales demand requires
  • More employees than future forecasted sales require
  • More employees in a particular division or product line that could add better value if they were redeployed to another division
  • Excess employees in a particular job category
  • Excess employees in high unemployment areas or job categories where there is no reason to “carry” surplus employees because new hiring can be ramped up rapidly when more employees are needed
  • Excess employees who are highly paid (and can be easily be replaced later with lower cost employees)
  • Excess employees in “overhead” departments
  • Excess managers (an excess in your manager to employee ratio)

Common Problems That Occur During and After Layoffs

Almost everyone has horror stories about how layoffs are done. Jack Welch of GE got his infamous nickname “Neutron Jack” as a result of his approach. Others get negative publicity in the press for their initiating numerous “repeat” layoffs in a short period of time, or for a single high volume layoff. Some get a bad name for the lawsuits that occur as a result of perceived discriminatory practices during and after layoffs. So just in case, you didn’t know them all, here is a long list of layoff problems (by category) that poor planning or execution can cause:

1. Planning and Strategy

  • There is no formal overall workforce plan (of which layoffs are just a single component) for managing human capital
  • Alternatives to layoffs and a variety of layoffs options (as well as the advantages and disadvantages of each) are not evaluated using data
  • There is no formal benchmarking, strategy, or written plan for conducting effective layoffs
  • A checklist for a world-class layoff process (critical success factors) is not complied and/or utilized
  • There is no formal “smoke detector” system of metrics for identifying “headcount fat” early so preventive actions can be taken
  • Headcount reduction is the only goal, rather than budgets and costs
  • After layoffs, workforce planning and redeployment ceases to be a priority and layoffs become a one-time occurrence rather than a part of an ongoing process of removing deadwood (the bottom five percent)
  • The reaction of direct competitors (both product and talent competitors) is not anticipated or planned for
  • The budget set aside for the effort is too small to allow for an excellent process
  • Things that the company will “stop doing” (because they are a low priority and we will have less people around to do them) are not identified or are not actually stopped

2. Who Does It

  • Layoff responsibility is owned by and delegated to HR (rather than line managers)
  • The people running the layoff initiative are not experts in workforce planning. HR or managers try to do it by “learning as they go.” Lessons from previous company layoffs are not taken into account
  • Managers are not measured or rewarded for continual redeployment and keeping headcount “fat” down.
  • Managers are not trained in the right and wrong ways to select employees and to communicate their termination

3. When It Is Done

  • Managers postpone layoffs to well beyond the optimal time because they are afraid to do it (since it’s unpleasant), or because they are afraid word will get out early and spoil morale, as well as scaring customers and shareholders
  • When layoffs immediately follow other “preventative” measures (i.e. a hiring freeze, salary cuts, forced vacation, etc.) there can be an increase in frustration and a loss of trust in management because those measures didn’t work
  • There is no formal “smoke detector” system of metrics for identifying “headcount fat” early so preventive actions can be taken
  • Layoffs are stretched out over time rather than being done swiftly (increasing anxiety, poaching, and top-performer retention issues)
  • Before layoffs are actually initiated, an effective internal redeployment (or intra-placement) plan is not instituted in order to move workers into areas where they can be better utilized

4. The Layoff Process Itself

  • The layoff process is so uncertain and is handled so poorly that the company takes its focus off the customer. The result is permanent damage to the business. Competitors are energized by this lack of focus and, as a result, they increase their efforts to take your customers
  • Managers or the CFO randomly pick a target layoff number (10%, for example) without any metrics or logic behind it, causing the process to start with little credibility
  • Productivity rewards for managers for after-layoff productivity are not sufficiently large to incentivize managers to overcome the human tendency to avoid laying off their “favorites and friends.” Instead, managers get rid of the most junior workers or “outside the box” thinkers
  • Employees are allowed to voluntarily select themselves for layoff (resulting in early departure of top performers)
  • Layoffs are used as an excuse to fire low performing employees (when that should be a continuous process)
  • The layoff process itself is not spelled out to employees (it’s kept secret) even after layoffs are announced
  • A poorly prepared person is in charge of communications. Poor or one-way communication occurs during the process. There is no anonymous feedback mechanism or dispute resolution process in place
  • Layoff and hiring freeze leaks are not prevented, resulting in counterproductive and hasty management actions
  • Layoff rumors and anxieties are not rapidly squelched by effective communication tools and strategies, and as a result, impending layoff rumors impact productivity
  • Impending layoff rumors or a slow process cause increased turnover of top performers and poaching by competitors
  • A list of “prohibited or discouraged practices” for managers is not developed to prevent them from playing favorites
  • A blocking strategy is not developed to prevent competitors from poaching top talent during turbulent times
  • Laid off people are identified but are allowed to “stay around” for weeks or even months
  • Potential violence in the workplace issues are not addressed
  • Potential legal risks are not assessed or addressed
  • International layoffs are not done in accordance with local laws and cultures

5. Selection Criteria

  • Layoff criteria are not identified and communicated to all employees well in advance of any thought of layoffs so that all employees will be able to assess where they stand long before any actual layoffs occur
  • Multiple opinions and multiple data points are not used in identifying top and bottom performers
  • Layoff decisions are based not on performance or business criteria but on emotion
  • Force ranking is manipulated to the point where only senior people are highly ranked and there is less than a 20% turnover in the top-ranked people each year
  • Subjective and ineffective performance assessment methods (both standard performance appraisal) are utilized in assessing performance
  • Remote, part-time or work at home employees are laid off in disproportionate numbers because they are seldom seen and lack political clout. Corporate and headquarters people are protected because of their proximity to “power”
  • Whether on purpose or not, a “last in, first out” layoff pattern occurs, resulting in a loss of fresh ideas and energy
  • The plan fails to identify individuals and positions that are extremely hard to replace or essential skills that will be needed in the immediate future. Also, top performers and key talent who are at risk of leaving are not identified and treated specially
  • Whether on purpose or not, a layoff pattern occurs in which a disproportionate number of older “protected” workers are laid off, resulting in an increased legal risk
  • Employees are laid off based on seniority rather than performance
  • Managers fail to identify areas where increased hiring will be needed even while layoffs are occurring in other areas
  • Managers fail to identify areas where technology or outsourcing can effectively be used not only to replace people but also to increase productivity

6. After Layoffs Are Completed

  • Overall costs are not reduced because headcount employees are replaced by contractors and consultants
  • Laid off employees are soon rehired (sometimes as higher paid consultants) because the firm finds out only after they were laid off how valuable they really were
  • Lawsuits and grievances occur as a result of perceived discrimination and failure to identify potential “problem” employees
  • Too few employees are laid off and as a result, layoffs must be repeated
  • The wrong employees (in the wrong jobs) are laid off, and as a result, company performance suffers and large-scale rehiring becomes necessary
  • Too many employees are laid off and large-scale rehiring becomes necessary
  • Severance packages are so high that overall people costs actually increase for a period of months. The “one-time” accounting charge is so large that it impacts earnings and stock price
  • Bad PR happens as a result of press coverage of large layoffs, which impacts future recruiting, retention, sales, brand image and stock price
  • Violence-in-the-workplace plans are dropped before all potential violence probabilities are eliminated
  • There is increased stress for “survivors” after layoffs because the workload is not reduced while the number of people available to do the work has been
  • “Survivor” depression is not anticipated and mitigated through counseling
  • Outplacement and career planning options fail to meet their goals of actually placing laid-off individuals into new jobs
  • The HR people designing the layoff strategy/plan are also laid off, resulting in the loss of knowledge and skill gained in the process
  • “Keeper” employees that are let go are not tracked and communicated with so that they can be targeted for rehire once there are openings
  • Employees are called back based on years of service rather than need, skill, or previous performance
  • After a layoff, lessons are not remembered for future use

About Dr John Sullivan

Dr John Sullivan is an internationally known HR thought-leader from the Silicon Valley who specializes in providing bold and high business impact; strategic Talent Management solutions to large corporations.

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