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Strategies To Stop The Layoffs

June 1, 1996
The numbers, broadcast to us daily, mystify and horrify us. Forty thousand workers to be laid off at AT&T, bringing the total in the '90s to 123,000; another 18,800 at Delta Airlines; nearly 17,000 at Eastman Kodak. All totaled, 43 million jobs have been lost in the United States since 1979 according to an analysis of Labor Department numbers by The New York Times. That means, says the Times, that three quarters of all households have had a close encounter with layoffs since 1980.

As if these numbers weren't scary enough, add to them the fact that a good number of the people whose jobs are cut can't find comparable work. That's because these aren't entry-level workers who can start over easily. Nitin Nohria, a professor at the Harvard Business School who has tracked changes at 100 of America's largest companies, found that 77% of all layoffs with these corporations involved white-collar workers. And, although the Labor Department puts the number of new jobs since 1979 at 27 million—enough to absorb all the laid-off workers plus the people beginning careers—only about 35% of laid-off, full-time workers end up in jobs paying either equally as well as or better than the last.

To be sure, this downsizing trend has generated societal anxiety. Research by the International Survey Research Corp., based in Chicago, indicates that the percentage of survey respondents who frequently worry about being laid off has more than doubled over the past five years, from only 20% in 1990 to 46% in 1995. And 51% of people responding to a Business Week/Harris Poll state that every time they hear of a company downsizing they worry about their own jobs as well as those of people close to them.

They have reason to worry. In a fax survey of 162 human resources executives, New York City-based William M. Mercer Inc. found that 35% of respondents foresee more employment cuts ahead.

What's going on here? There are many factors contributing to this trend. Certainly the technological revolution has taken its toll. As machines get more sophisticated, they acquire the capabilities to replace several people—people who require ongoing salaries and benefits. Certainly, too, as presidential candidate Pat Buchanan brought to the forefront during campaigning, the shrinking of the world has had an impact both from global competition and immigrant workers. Even the growing outsourcing trend has spawned the elimination of corporate jobs—many of them human resources jobs.

Probably the biggest contributor to the downsizing phenomenon, however, is the growing pressure on corporations to net increasingly larger stockholder returns—at any expense. "The institutional shareholders have declared that a corporation's principal, if not sole, objective is maximizing total shareholder return and profit," says Steven E. Hall, managing director of Pearl Meyer & Partners Inc., an executive compensation consulting firm based in New York City. "Other stakeholder interests—particularly those of employees—have been outweighed."

To be sure, massive layoffs do line the pockets of share- holders—at least temporarily. When layoff announcements come, stock prices surge. According to the The New York Times, the day Sears and Roebuck announced it was discarding 50,000 jobs, the company's stock climbed nearly 4%; when Xerox announced a cutback of 10,000 jobs, its stock surged 7%.

But is downsizing truly the answer? According to Washington, D.C.-based The Wyatt Company, between 1989 and 1994, operating profits increased in only 51% of companies reporting workforce reductions; 20% said operating profits actually declined. Another survey by the American Management Association (AMA), based in New York City, found that fewer than half the companies laying off people managed to increase their operating profits after workers were let go, and only one-third did so in the short term. The reason, says Eric Greenberg, director of management studies for AMA, is that too many companies ask the wrong questions. "They ask: 'What can we get away with? What's the minimum number of people we need to do the things we've always done, in the way we've always done them?' This doesn't result in increased profit, increased productivity or increased quality."

Dick Lidstad, VP of HR for St. Paul, Minnesota-based 3M—a Personnel Journal Optimas Award winner for such programs as the Unassigned List for people whose jobs have been eliminated—agrees. "You don't get productivity and committed employees if at the first sign of bad times you show them they're expendable," he says.

Indeed, among 531 companies surveyed by the Wyatt Company in 1993, more than half reported decreased morale and commitment among downsizing survivors. Plus, downsizing actually incurs additional costs for companies, such as for severance pay, accrued vacation and sick-day payouts, outplacement, pension and benefit payoffs, and administrative processing costs.

That's not to say that companies should never downsize. There's no denying that past good times have left many companies bloated with layers of excess that need to be shed for the organizations to stay competitive. Sometimes, some workers' jobs must be sacrificed to save the company and thus many more jobs.

But too many companies today are too quick to dictate downsizing as the answer to financial woes. Some even use this strategy during good times in an attempt to gain a competitive edge.

Such actions have caught the attention of government. Senator Edward Kennedy (D-MA) is calling for tax breaks to companies that save or create jobs, train workers for better employability and share the gains when the company is profitable.

Apparently, the public agrees with this strategy. In a Business Week/Harris Poll, it's reported that 83% of those polled agree—either strongly or somewhat—that the U.S. government should use lower taxes to reward companies that create or preserve jobs and train workers; 67% agree that the government should use higher taxes to penalize companies that eliminate jobs, close plants or pay their executives extremely high compensation.

Whether or not these initiatives take hold, American corporations need to again take responsibility for their workers, their human capital. Employees are assets, not liabilities. They are what gives a company its competitive advantage. Averting downsizings in all but extreme cases is more than altruistic—it's imperative for the bottom line. Layoffs should be a last resort, not a quick fix.

And, it's HR's role to ensure that happens. Says Lidstad: "It's my fundamental belief that HR has an obligation to help maintain the relationship between a company and its employees. Downsizing ought to be painful—you need to sweat and bleed a little before you take that last step."

That's what the companies profiled on the following pages believe as well. In fact, Reflexite Corp. actually lists layoffs as the last action to take in its detailed Business Decline Contingency Plan. The HR and other leaders there, along with those at the other profiled companies, have met the challenge of today's turbulent times head-on and have committed to saving their workforces—while remaining competitive. Harman International, for example, a consumer electronics firm, developed a system by which workers would create products beyond the company's ordinary product lines during slow times. President Clinton visited the company's Northridge, California facility in March, hailing it a "good corporate citizen" and urging other companies to follow suit "within the limits of their capacity."

The president solicited for other company leaders to ask themselves if they could do something similar. Personnel Journal thinks they can, (with your help) and offers the following examples to spark your ideas. As Clinton pointed out in his State of the Union Address: "We need people to really think about whether it's the fair and right thing to do when you see these downsizings. If they have to do it to keep the business afloat, every American can understand that. But no one should lose a job for short-term considerations that are not necessary for the long-term well-being of the profitable enterprise. We all need to do our part to keep America growing, and growing together."

Personnel Journal, June 1996, Vol. 75, No. 6, pp. 66-67.