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Facing the Layoff Trend

February 2, 2001
Related Topics: Downsizing, Termination, Featured Article
Are you torn over whether it's time to hold off or go ahead with a round of layoffs?

    You're not alone. Employers today arefaced with a dilemma that would boggle Solomon's mind.

    On the one hand, they're faced with aslowing economy and rising labor costs. On the other, jobs are still beingcreated faster than they're being eliminated. It's a paradox that's at the heartof today's workplace issues.

    "Employers can no longer offerlong-term tenures and long-term loyalty," Challenger says. "At thesame time, they deeply need people who are competent and committed. In thisperiod of downsizing, the number one issue is retention."

    Challenger, Gray and Christmas beganmonitoring layoffs in 1993. The heaviest period for downsizing the firm has seenwas December 2000 and January 2001. There were 133,713 layoffs in a two-monthperiod. Today unemployment stubbornly remains at 4 percent, indicating that atleast some new hiring is still occurring.

    "These announcements are leadingindicators," says Challenger. "I think they portend where the economyis going, but even if unemployment begins to rise, we have a long way to gobefore the 7 percent of the last recession."

    Business professor Kenneth De Meuse ofthe University of Wisconsin-Eau Claire is co-author of a forthcoming book,Resizing the Organization. He believes that many companies have lockedthemselves into a cycle of binge hiring and purging, dependent on the short-termfluctuations of the market. He refers to the trend as "corporatebulimia."

    "There's a lot of uncertainty withthe new administration," says De Meuse. "Greenspan's on TV everynight, and American families are reacting to the energy crisis. There's a lot ofparanoia out there, causing companies to overreact.

    "Too often, layoffs are acompany's first resort rather than their last."

    While the effect has been morepronounced throughout December and January, De Meuse points out that there havebeen at least a half-million layoffs a year in the United States in the pastdecade. In his opinion, this is a symptom of many businesses' failures to take along-term view of how many employees they need.

    "I truly believe that a company'smost valued asset is the people who work for it," says De Meuse. "Ifyou look at two organizations, what separates them is not the technology, or thecomputers, the smokestacks or the brick and mortar, but the employees. And ifyou really believe the employees are the most important asset, why would you getrid of them?"

Possible steps to take in order tostave off a layoff

  • Consider where excesses havedeveloped, and eliminate those expenses where possible.

  • Leave jobs unfilled when there'sattrition, or only hire part-time employees.

  • Give extra assignments to currentstaff, rather than making new hires. Ask them to work longer hours. Practicegood strategic management.

  • Offer less overtime pay and vacationtime.

  • Consider a four-day workweek.Charles Schwab has asked people to take off three Fridays over next fiveweeks as an unpaid vacation to cut back on costs.

  • Offer fewer perks. The days ofin-office air hockey are gone.

  • Cut back on benefits.

  • Eliminate bonuses.

  • Throw cheaper holiday parties andother company celebrations.

What to consider while implementing alayoff

  • To prevent drastic action, make sureyou've taken every possible step to cut expenses. Make sure you're notdamaging your own production by cutting employment costs.

  • Reconsider the expenses that will beincurred directly and indirectly by the layoff. For many companies, there isan added expense because of severance packages, and also a marked increasein health costs. Employees who know they will be downsized are likely totake care of their health by scheduling physicals and dental work thatthey've previously put off. This results in burst of expenses. At the sametime, incidences of stress-related illness and accidents are commonplaceamong "surviving" employees. That further impacts health careexpenses and productivity.

  • Make certain you are notdiscriminating against particular groups. Try to eliminate staff by usingthe fairest standards possible.

  • Take stock of individualperformance. Who do your managers feel they can't do without? Who are theywilling to let go?

  • Consider the time frame of thelayoffs, and decide what timetable will cause the least disruption to yourworkflow.

  • Decide how to deliver theannouncement. Before getting the word out, determine who will be privy tothe information. In one regrettable incident, New York Times employees readabout their own layoffs in the paper before they were officially notified.There have been several cases of layoff announcements going out on companye-mail prematurely.

  • Train people to deliver the news. Awell-handled and compassionate layoff can dissuade ex-employees fromdisparaging your company.

  • Give proper advance notice, andproper outplacement support. Partly because of their experiences in theearly 1990s, companies are much more focused today on decent outplacementservices. They can help circumvent problems with former employees later on.

  • Decide in advance the size ofseverance packages, including whether or not they include outplacementassistance and health coverage throughout the period of severance. Adviseworkers immediately on options for their health coverage and retirementpackages.

  • Be sensitive to the"survivors." It's the employees who remain who will determine thesuccess or failure of your company. Too often management overlooks theirneeds. Survivors need counseling, training, and care. One of the inevitableresults of layoffs is a dispirited workforce. They're unlikely to servecustomers well, and a declining level of service is the last thing yourcompany needs.

Average severance packages

  • At a mid-sized company, an executiveemployee receives, on the average, one to four weeks of severance pay foreach year of service to a company.

  • A middle manager receives, on theaverage, one to two weeks of severance pay for each year of service.

  • Rank and file employees receive, onthe average, a minimum of a week of severance pay for each year of service.

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