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Blog Post

3 Steps to Avoid Layoffs

By Matt Whiat, Founding Partner
Sara Hannah, Managing Partner

In a span of mere weeks, organizations around the globe are facing a slate of difficult decisions. For many, this includes the agonizing question of whether to stay open or close doors and if the organization can continue to employ all team members.

As business leaders navigate uncertainty, one thing is clear: how you react, what you decide, and the communications you send will either strengthen or weaken the business in the long-term. No one can argue that layoffs are an instantaneous way to cut costs. However, the ripple effect can be extreme and long-lasting. There are costs to both the organization and those laid off.  Perhaps less obvious than the potential immediate savings, but with long-term impact. Before deciding, consider the following:

How Layoffs can Negatively Impact Organizations:

  • Reduction in product quality and team member safety.
  • Declines in innovation.
  • Deterioration of relationships between salespeople and customers.
  • Lower overall morale and increased distrust.
  • Loss of talent, industry knowledge and skills.
  • Future negative impact on hiring top talent.

How Layoffs Impact Individuals:

  • COVID-19 and the uncertain impact on our economy makes finding a new job nearly impossible.
  • Losing health benefits during a global health crisis.
  • Considering loss of a job ranks in the top ten most stressful times in a person’s life under ordinary circumstances, losing one’s job in the current environment is even more so. 

Prevailing research concludes that layoffs are not good for organizations long term and obviously not good for the individual. However, one could argue that our current COVID-19 environment is so unprecedented, that layoffs are warranted for survival.

So, what’s the alternative? Shared Sacrifice, the idea that everyone suffers a little so that no one suffers a lot. Used successfully by global manufacturing and professional services organization, Barry-Wehmiller, during the 2008-2009 economic downturn and highlighted in the book Everybody Matters: The Extraordinary Power of Caring for Your People Like Family, shared sacrifice allows you to retain your top talent, maintain customer service, preserve industry knowledge, and recover faster.

When Barry-Wehmiller ran into the economic headwinds of 2008 and 2009, its CEO, Bob Chapman, asked the question, “What would a caring family do when faced with such a crisis? All family members would absorb some pain so that no member of the family had to experience dramatic loss.”

The organization implemented a furlough program wherein each employee took two weeks to one month of unpaid leave. Those who earned a higher salary were asked to take more time off. Combined with other measures (suspension of 401K match program and voluntary early retirement), the company saved $20M.

However, the furlough program had unexpected benefits beyond cost savings. Team members now had a currency they could use to take care of one another. Those who wanted more time off could donate days into a pool. Those who couldn’t take any time off could be awarded those days.

Despite being asked to sacrifice a portion of their income, empathy, trust, and loyalty increased. So did customer service, attention to quality, and innovation. As the economy recovered, the organization rebounded faster and had a record year in 2010, and every year thereafter.  Trust increased as well when Barry-Wehmiller returned the matching funds into the 401K retirement accounts when it was possible to do so. Follow these three steps to protect your business and your culture:

STEP 1: Reduce Expenses

Conduct a thorough review of discretionary spending and other negotiable costs, to include:

  • Suspend matching retirement funds, bonuses, and annual pay increases.
  • Re-negotiate rent, loan payment terms, and professional service fees.
  • Eliminate nonessential maintenance.
  • Delay capital expenditures.
  • Implement a hiring freeze.
  • Sublet your available space.
  • Consider relocation to a less expensive option.
  • Scrub monthly expenses to include phone bills and employee perks such as cars or meal service.

STEP 2: Focus on Value Generation

Are there ways you can generate value, even if it means reinventing the business?

  • Retrain your team members, for example, shifting resources towards your sales department.
  • Engage your team on new ways you can serve customers and your community, for example, a shifting from dining room only to a restaurant that delivers.
  • Ask yourself what people need right now and if your organization is in a position to provide it, for example, a beverage company now bottling hand sanitizer.

STEP 3: Apply Shared Sacrifice

It’s not just about saving a company, it’s about saving each other. Consider the following:

  • Reduction in work hours: Give team members their time in return for their sacrifice in pay.
    • Furlough team members in week increments.
      • If possible, allow team members to select their week in a given time frame.
    • Reduce the number of hours worked each day.
    • Work a 4-day work week.
  • Reduction in pay: If operationally, furloughs are not possible, there are alternatives:
    • Reduce the pay of your senior team. This is the group that typically has the most to gain when times are good. The opposite should be true in troubled times.
    • Implement an organization-wide temporary pay-cut. Possible modifications include:
      • A greater pay-cut for higher paid team members.
      • A pay-cut “floor” – i.e., no pay-cuts below a set threshold.

Each organization has their unique needs and situations. Perhaps for your organization, layoffs are the best answer for survival. However, before laying off any of your team members, consider that these unprecedented times call for extraordinary leaders. Leaders that make the most informed, thoughtful, and caring decisions moving forward. Be that leader. Be extraordinary.

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