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No-Layoff Policy

July 1, 2003
Related Topics: Downsizing, Featured Article, HR & Business Administration
Peggy Laplante, a 45-year-old machine operator, is that rare employee, a happy and productive worker who can count on staying in her current job until she retires. And as long as she doesn’t abuse the system and get fired, she won’t face unemployment because her company, Hypertherm, Inc., has a no-layoff policy--unusual in any company, particularly in manufacturing.

For CEO and founder Dick Couch, this policy isn’t intended to be philanthropic. It’s just good business, he says. After all, if his associates (employees) aren’t worrying about losing their jobs in an economic downturn, they can concentrate on the company’s mission: to provide its customers with the very best plasma-cutting equipment and standards of service. While Couch says he wouldn’t go so far as to drive his company to bankruptcy in order to maintain this policy, there have never been any layoffs in Hypertherm’s 35-year history, the business is successful and the future is bright. He passionately believes that creating a good business climate--which includes offering good benefits--has a direct impact on business results.

In a sluggish economy characterized by shrinking staffs, maintaining workforce levels is, of course, more the exception than the rule. According to outplacement firm Challenger, Gray & Christmas, the highest number of planned job cuts since November 2002 occurred in April--146,399--up 71 percent from the previous month, when the figure stood at 85,396. A Business Roundtable survey of senior executives representing the biggest employers in the United States reports that 45 percent expect to let more workers go in the foreseeable future.

So how do companies like Hypertherm avoid handing out pink slips? How do they remain competitive and financially successful with a no-layoff policy? For Dick Couch and other CEOs who have implemented similar initiatives, the answer lies in a management philosophy that includes treating employees as an important investment, taking a cautious, well-thought-out approach to hiring new people and developing a flexible, highly responsive workforce by training people to handle a variety of jobs within the organization.

For Peggy Laplante and others like her who know how it feels both to be laid off and to be a survivor of a major workforce reduction, Hypertherm’s promise of job security is the most important company benefit of all. In exchange for that peace of mind, she and her 510 associates at the Hanover, New Hampshire, plant gladly contribute to improving business processes and reducing the firm’s manufacturing costs. Unlike many companies, Hypertherm implements most employee ideas, which reinforces motivation.

Last year, ideas from Hypertherm’s Continuous Improvement Activity program saved the company more than $2 million. As Couch explains, they tend to be small initiatives that a work group can implement quickly, by themselves, without any capital investment--such as reducing the amount of time it takes to complete a process or shipping products more efficiently. "Our team used to machine a part where the scraps from that process were simply thrown away," says Brenda Blair, human resources director. "One of our associates realized that this ‘waste’ was the perfect size for making another part which we bought from outside. That simple idea eliminated the need to buy-in materials, which saved us at least $50,000 every year."

She and Couch caution those who might be considering a no-layoff initiative to take stock and plan before they do. Such a policy can’t just be bolted on to an old way of doing things or operated in a vacuum, they say. It must be an outgrowth of what the company stands for, a genuine expression of an organization’s regard for its people.

Xilinx, an award-winning Silicon Valley semiconductor company frequently found on the Fortune Best Companies to Work For lists, doesn’t have an official no-layoff policy. But it has never discharged an employee for "no fault" in its 17-year history and says workforce reductions are always "a last resort."

"Studies have proven that
companies that emphasize job security have a higher return to shareholders over time."

"Studies have proven that companies that emphasize job security have a higher return to shareholders over time," says CEO Willem P. "Wim" Roelandts, who joined Xilinx after 30 years with Hewlett-Packard. "When the economic downturn took place, we explained the dilemma and financial bind we were in as a company and solicited employee feedback as to where we could cut costs."

Through the collective efforts of management and employees--including canceling unnecessary business trips, flying economy class and introducing temporary, tiered pay cuts that had the greatest impact on executives rather than employees--Xilinx saved more than $10 million a quarter in payroll costs alone. "As CEO I was amazed by the personal sacrifices each employee was willing to make in order to avoid a layoff," Roelandts says.

Xilinx was able to introduce five new products in an 18-month period and increase its market share by 17.8 percent. Last year it ranked fourth worldwide in terms of revenue generated in the semiconductor market. While not as inclined to disclose its revenue position to the outside world, Hypertherm has experienced double-digit growth in the past 10 years and says it continues to increase sales despite economic challenges.

Both Roelandts and Couch believe that having a CEO who understands and lives by very specific core values is vital, as is taking a considered approach to hiring. "Every head-count addition receives a lot of justification and evaluation here," Blair says. "While it’s not a hard-and-fast rule, we try to aim for a 3:1 ROI ratio of business benefit against the cost of bringing in a new associate."

Couch also stresses the importance of interviewing for cultural fit. "Ours is a very open, egalitarian environment," he says. "If a person has come from a buttoned-down company where everybody has their own office and private secretary guarding the door, they’re probably not going to do well here. We think a lot about hiring people who have the same basic philosophy."

That philosophy includes working where you are needed, when you are needed. There’s no atmosphere of "This isn’t my job" because that doesn’t fit the culture at Hypertherm. By populating the company with flexible, highly responsive can-do types, it’s able to keep the wheels of industry moving, even when business is slow.

"Hypertherm has three business teams that meet the specific needs of our different customers," says Wayne Elliott, a 20-year veteran of the company. "Typically, we don’t find all three units suffering simultaneously. When I can’t gainfully employ a number of my associates, one of the other two teams usually needs additional help. Our associates recognize that the development of the company relies on their continuous growth and development, so they welcome the opportunity to learn new skills, to be cross-trained and move within the business as necessary. HR facilitates this by maintaining a list of all associates and their qualifications. When someone doesn’t have the required skills, they are assigned a technical trainer who works with them one-on-one until they’re qualified and get documented."

A similar approach is taken at Lincoln Electric, a celebrated welding firm in Cleveland. Founded in 1895, this company has offered "guaranteed employment" to those with three or more years’ service since the 1950s. According to John Stropki, president of North American operations, Lincoln commits to ensuring that every employee has a job--just not a specific job. Like Hypertherm, Lincoln cross-trains employees so they can move to different areas as needed.

Couch says he must continually reiterate to managers and associates alike that having a no-layoff policy doesn’t mean putting up with poor performance.

No policy is without its drawbacks, however. Couch says he must continually reiterate to managers and associates alike that having a no-layoff policy doesn’t mean putting up with poor performance. "This isn’t a license to do whatever you want," he says. "While we lean over backwards because we pride ourselves on a friendly, family atmosphere, and we became an ESOP [Employee Stock Ownership Plan] company in 2001 as another way of demonstrating associate ownership, this is a business, not a hobby. We have standards of performance that people have to live up to or else they can’t stay here."

Couch says he’s surprised that so few companies embrace a no-layoff policy. "I was at a conference on entrepreneurship at Dartmouth recently and sat on a panel discussing the financing of start-up companies," he says. "The guy next to me was a young, very bright venture capitalist who believed that the purpose of business is to maximize shareholder equity. I say that the purpose of business is to satisfy the customer and to focus on the development and well-being of your associates, from which good things will happen--including the ‘accidental’ benefit to shareholders. It seems some corporate folks are never going to understand the value of no layoffs because their fundamental philosophy about what we’re in business for is very different."

Peggy Laplante knows which approach she prefers. "When I see the economy sliding and hear of companies laying people off, I can remain focused on my work rather than worry about what’s going on outside," she says. "At Hypertherm everyone ensures that you feel special and involved. And it makes me want to do a better job, knowing that the company cares about me."

Workforce, July 2003, pp. 96-99 -- Subscribe Now!

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