This morning’s headlines in my news apps included an item about McDonald’s closing its US offices as preparation for layoff announcements. Many companies across industries are planning or have already executed layoffs; but there can be significant downsides, and we’ve seen some play out. Thoughtful approaches to cost cutting or layoffs are vitally important because trimming the wrong people or functional areas may undermine your strategy or cripple future innovations. How can you know you’re cutting the “right” people?
Historically, organizations have relied upon various approaches to layoffs. Three that I have seen most frequently–and this list is by no means exhaustive–include 1.) offering early retirement to older workers, 2.) Cutting low performers, and 3.) eliminating positions in training and development. Approaches like these seem to make sense and they have the added “advantage” of seeming to be fair and reasonable. But these approaches, and others like them, have downsides worth considering.
Early retirement
It is common practice to offer early retirement when laying off employees. However, there is a downside. Some employees in this demographic have strong work ethics, and some organizations are deliberately recruiting older workers because of this characteristic. Additionally, there is strong institutional knowledge represented among more senior employees. If an organization has not deliberately and systematically been gleaning institutional knowledge from senior employees as part of preparing for their exits, sweeping reductions via early retirements may not be ideal. Another factor to consider is the functional areas in which the senior employees work: if any of them work in functional areas that represent the future focus or the company’s strategy, you may want to evaluate the option more closely to prevent cutting too much in those areas that will be so important to the future of the organization.
Cutting low performers
Cutting low performers is another common way to reduce the workforce, and it can work very well. There are a few caveats: How are you measuring performance? Beware of using a force-ranking system to determine levels of performance because force-ranking often compares employees with very different work responsibilities and the results are not indicative of an employee’s value to the organization. Assessing employees’ performance related to measurable outputs and expectations is a better yardstick. Also, look for “red flags.” Are there several low performers in a particular functional area? Perhaps that lagging performance points to mediocre performance higher in the hierarchy. Another trap I’ve seen related to performance and layoffs is some organizations are very reticent to cut high performing, yet toxic, employees. If toxic employees are tolerated, they cause lower performance in others, and you will lose employees you don’t want to lose. I believe in accountability and consequences for low performance, but we need to evaluate how we are defining those.
Eliminating training and development positions
This “solution” was a mainstay in layoffs of the past. However, post-pandemic employees have a new set of expectations that impact recruiting and retaining effective employees. Today’s workers demand more autonomy and flexibility on the job, they want to like their leaders, and they want growth and development opportunities. Therefore, significant reductions in Training and Employee Development functions may undermine trust and the culture you are trying to build for the future, and you may lose employees as a result.
The examples I’ve offered are by no means exhaustive. Other functional areas also characteristically see major cuts. The main point is this: We need to rethink how we do layoffs. In planning layoffs, taking a thoughtful approach means keeping these key principles in mind:
1. Layoffs, if needed, should directly align with your strategic plan. Across the board layoffs should not undermine the ability to achieve the strategy. This means that you may have more layoffs in some of your mainstay businesses—the staples of the company’s past–and fewer in more innovative businesses.
2. Blanket layoffs can undermine the culture and future vision of the organization. How can you plan and communicate layoffs that will not erode your culture for the long term? And what will you do to alleviate the loss of trust once the layoffs are done?
3. Don’t sacrifice the long term on the altar of the immediate. It may be tempting to make deep layoffs for immediate gain, but carefully evaluate the long-term costs.
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