Nobody's favorite word—Layoffs

November 25, 2008
By: Vicki Bell

Mass layoffs are occurring with greater and greater frequency. With proper planning, some may have been avoidable. Some troubled companies may be able to find alternatives to layoffs, and all can take steps to minimize layoff pain for both the displaced workers and those who remain on the job.

In this second half of 2008, hardly a day goes by that mass layoffs aren't announced. In the first two weeks of November, GM announced plant closings and layoffs of 5,500 workers; Chrysler announced plans to cut up to 12,000 jobs; DHL Express is laying off 9,500 workers and shutting down hundreds of service centers; and Circuit City has filed for bankruptcy protection and plans 700 layoffs.

On Oct. 27, reported that layoff announcements involving at least 50 workers rose in September to the highest level since the Sept. 11 terrorist attacks seven years ago, and in October, 240,000 jobs were lost, continuing the trend toward high-level layoffs.

The article quoted Chris Kuehl, economic analyst for the Fabricators & Manufacturers Association Intl.® (FMA) , who said, "Most manufacturers are pretty secure. But there's been a lot of action in the auto and aerospace sectors, such as the Boeing strikes and the low demand for cars due to the credit crunch."

The Center for Automotive Research, a nonprofit organization, published a report Nov. 4 that estimated 2.5 million U.S. jobs would be lost in the first year if the U.S. auto industry shrinks by 50 percent. Of that number, only 239,000 job losses would be from GM, Ford, and Chrysler. The remaining 2,261,000 would be from parts suppliers and related industries.

Kuehl believes that layoffs at auto and aerospace companies, a large segment of the manufacturing industry, don't tell the whole story. "After all, the medical manufacturing and energy segments are gangbusters," he said.

Noting that the overall situation is grim, and the worst may not be over, the CNN article also cited Sue Murphy, manager for the National Human Resources Association in Nashua, N.H., who believes that there will be an increase in layoffs as the practice of scrutinizing employee count continues.

She said companies will accelerate the trend of cutting hours, replacing jobs with technology, and outsourcing labor during tough times like these, when their priorities are protecting costs and market share.

"The companies look at the nice-to-haves and the must-haves, and the employees that are not essential will be up for review," Murphy said. "A lot of quality people will be out of work."

Granted, times are tough and only will get tougher as workers are laid off and can't afford housing and basic necessities, let alone pump money into the economy and help improve conditions. The current situation is a vicious cycle. Both employers and employees are caught between a rock and a hard place.

Avoiding Layoffs

Dr. John Sullivan, head and professor of the Human Resource Management College of Business, San Francisco State University, has written a five-part series about layoffs: How and when to do them; Key steps in effective layoffs; Avoiding layoffs in the first place; The quick and dirty approach; and Maintaining morale and productivity during layoffs.

In an ideal world, companies would think about what they could do to avoid layoffs long before they get to the point where they believe layoffs are necessary. Sullivan described what he believes are the most effective ways to avoid layoffs:

  • Effective forecasting of work force needs
  • Redeployment of employees from areas of low need to areas of high need
  • Maintaining a flexible work force
  • Increasing productivity and sales
  • Effective performance management
  • Implementing alternatives to layoffs

Sullivan said, "Work force planning is one of the most neglected areas in HR. Most firms don't do it well (in fact, most firms don't do it at all!). In a rapidly changing world, planning is even more essential for firm success. So if you want to avoid layoffs, you need to plan ahead, act now, and utilize some of [these] tools."

Sullivan listed specifics for implementing each of these tools, and employers that are not yet at the brink of layoffs could benefit from looking at each suggestion more closely. Those who are considering layoffs should first consider alternatives:

  1. Reduce team size and operate at undersized staffing levels.
  2. Increase targets and use stretch goals.
  3. Offer both team and individual productivity incentives.
  4. Increase the use of distributed metrics to help employees see their high and low productivity areas (and those of others).
  5. Reduce PTO like sick and vacation days to increase the number of hours worked.
  6. Explain the situation and ask workers to do more with less.
  7. Redesign key jobs to eliminate low-value work and duplication.
  8. Sell off low-profit business units with high people costs.
  9. Outsource operations that have previously been (or in the future may be) subject to layoffs.
  10. Close low-productivity plants and transfer the people to other plants.
  11. Offer early retirement packages.
  12. Institute a hiring freeze in areas that are most likely to undergo layoffs (e.g., production) if business slows.
  13. Increase the number of approvals required for a hiring requisition.
  14. Hire people in low-labor cost areas (countries and geographic regions) that can do the same volume of work that is now done in a high-labor-cost area.
  15. Force people to take unused vacation to cut costs (due to accounting rules).
  16. Offer employee pay cuts inlieu of layoffs.

One Company's Plan

According to the, Hubbardton Forge, Castleton, Vt., is among those companies employing creative measures to avoid layoffs. The maker of hand-forged decorative lighting and accessories chose to reduce its workweek and production until the end of the year. To minimize the impact on its 250 employees' paychecks, the company is advancing them a portion of their profit-sharing bonus, which usually is paid at the end of the year.

The company also applied to participate in Vermont's Short-Time Compensation program, which provides unemployment benefits based on reduced hours.

Company CEO Ben Anderson-Ray said most employees were pleased with the approach the company is taking as a way to avoid layoffs. He also said the company is increasing its sales and marketing efforts while focusing on product innovation.

However, for many employers and workers, it's too late to plan ahead, and any alternatives to layoffs have been deemed unacceptable. Layoffs are a done deal, and the most that can be done is to minimize the pain and suffering of those who were laid off and those who remain employed after the layoff.

In Part V of his series, Sullivan suggests ways employers can improve morale and productivity both during the layoff process and immediately following the layoff.

Before and During the Layoff Process

Sullivan said, "The uncertainty caused by layoffs can impact both companies and employees in many ways, most of them negative. During large-scale layoffs, morale and productivity can plummet. Even more importantly, it's common for firms to lose their focus on the customer. If a firm is to avoid the need for future layoffs, HR must be proactive and anticipate all major morale and productivity problems."

Among the action steps Sullivan recommends employers take during the layoff process are:

Focus on Productivity—Use metrics and rewards to narrow your focus and avoid distractions.

Manage Rumors— Smart HR people develop "rumor hotlines" and other communication mechanisms to combat these rumors.

Work With Managers—Bad managers are always a problem. But during layoffs, they are a disaster. HR must identify weak managers quickly, and either drop them or retrain them. In addition to training, you need to add rewards and measures for great people management to the mix to make sure every manager is aware that mistakes made during a layoff will cost them. In addition, measure and reward the retention of top performers during and right after layoffs to keep managers focused on this real possibility.

Offer Counseling—Republicize your EAP counseling services. Consider offering them on-site one day a week during the "stressed out" period caused by layoffs. Make it easy to get help. Just knowing that help is close by will relieve much of the tension.

Get Consulting Help—Utilize professional networks and consulting firms to help to manage the layoff process. Learning as you go is a disaster. If you are not the first in your "neighborhood" to do them, learn lessons from your neighbors on how to keep productivity up.

Survey Your Employees—Do pulse or e-mail surveys of a sample of your key workers to identify their issues and concerns. Use that information to modify your communications and morale-building approach.

Don't Drag It Out—When costs get out of hand, you need to act quickly in order to minimize customer impacts. Decide how to do layoffs long before the need arises. When the time comes, decide who must go and then do it within a two-week period.

Post Your Layoff Criteria—Determine long before you do layoffs what the criteria will be for being laid off and announce it. Even though it might seem counterintuitive, this openness actually allows all employees to know what criteria will be used, so that those who currently fit the criteria can have an opportunity to work harder toward becoming exempt from the layoff criteria. For top performers and those in key jobs, it also reduces anxiety and allows them to see that they are important and needed.

After the Layoff

Commenting on the period immediately following a layoff, Sullivan said, "And you thought after the 'deed is done' life would get easier? Actually, the hard part occurs after the layoff day." Sullivan recommended action steps grouped under broad headings to minimize the day-after pain:

Management Actions—Make your CEO more visible and accessible; hold managers accountable; eliminate nonessential work; develop forecast and measurement tools that will warn you long before you need to do another layoff; put limits on people expenditures; don't freeze all hiring—some areas can be growing as layoffs occur in others; and track to see where laid-off workers go so that you can target them for rehire when there are openings.

Counseling-related Steps—Offer on-site EAP counseling and encourage communication between managers and survivors; consider including the survivors' families in counseling or communicate to them the stress their family member may incur because of the situation; and don't forget about your HR professionals, who, because they worked on the process, likely may be the most stressed of all employees.

Informative Steps—Overcommunicate with remaining employees; redo your external image—counter any negative press with positive PR about your company; and increase the information flow to any remotely located staff.

Sullivan concluded his series by saying, "Deciding to do layoffs is a traumatic enough decision for managers and HR people. But unfortunately, even after the actual layoff is done, your problems will not diminish. It takes strong metrics, rewards, communications, and an excellent counseling system if you are to maintain morale, avoid turnover, and increase productivity."

Layoffs should be handled with the utmost consideration for both those let go and those who remain. To paraphrase a quote from Dr. Martin Luther King Jr., the ultimate measure of a good employer is not how he treats his workers when business is prosperous, but how he treats them when times are tough.

Vicki Bell

Vicki Bell

FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-227-8209