The Downsizing Dilemma
During periods of economic uncertainty, businesses begin to examine alternatives for cost containment and operational efficiencies. Personnel costs of salaries and benefits represent one of the largest line items in an operating budget and are generally first considered when reductions become necessary. If an employer is contemplating a layoff of personnel, it is important to be aware of some fundamentals. Downsizing is a challenging solution to a complex problem and has the potential to affect business as well as impact employee morale and potentially future employee productivity.
Companies who take the time in planning and preparing for downsizing find they are able to minimize the impact. Here are some things to consider:
- Make smart decisions now. If a layoff is a likely event, but not an immediate necessity, making smart decisions about your employees now may help minimize the fallout. This means carefully evaluating current vacant positions to determine if realigning existing personnel can sufficiently meet business needs; properly documenting and coaching poor performers to improve to an acceptable standard or replacing them with solid performers; using attrition to make the necessary cuts; hiring the right candidates from the start and using thorough interviewing techniques and behavioral assessment tools.
- Reduce the risk of litigation. There are federal, state and even local laws that govern layoffs. Make sure you are aware of those that may affect your organization. For example, employers covered by the Federal Worker Adjustment and Retraining Notification Act (WARN) must provide 60 calendar days advance notice for mass layoffs.
- Recognize the human side of downsizing. How downsized employees are treated directly affects the morale and retention of valued, high-performing employees who are not downsized. A study in the Academy of Management Journal found that employers who experience layoffs often see an increase in voluntary turnover among employees they wanted to retain.
- Prepare employees for the inevitable. Employers often avoid telling employees they will be laid off until the last moment due to fear employees attempt to sabotage their jobs or somehow negatively impact their business. This action appears to be avoidance of a difficult conversation, which creates an environment of mistrust from those employees who survive the layoffs. In addition, it opens the organization up to liability regarding wrongful termination. Employees that feel they were blindsided by the termination often look to the legal system for retribution.
- Prepare for workplace violence. Tough economic times that are coupled with layoffs are often volatile times and could increase the possibility for workplace violence. As a precautionary measure, employers must always consider the potential for workplace violence and train their management team to be prepared. They need to be aware of the early warning signs. In addition to educating managers, companies are encouraged to have a workplace violence policy that their management team applies consistently. Some examples of early warning signs, according to Richter & Hampton LLP, include excessive absenteeism or tardiness; serious performance decline; unresolved or ongoing disputes; a personal crisis period, either domestic or financial; frequent mood swings; overly aggressive behavior; brooding, distrust, or agitation; paranoia, obsession, or delusion; fascination with weapons; obsession with violence; loners with no support systems and/or deteriorating grooming habits.
While layoffs may become a necessary action for an organization, companies can ready themselves for a more positive outcome. Be smart, plan and communicate, and you can steer clear of avoidable risk.