As a new reporter at this paper's Pittsburgh bureau in the early 1980s, I had a front-row seat when steel companies, battered by lower-cost Japanese rivals, closed plants and laid off thousands of workers and managers. There was shock, anger and the mistaken belief among many workers that they’d get their jobs back when the economy improved.
It was the onset of corporate restructuring—and the beginning of the end of the era when employees could expect to spend a lifetime at one company. Today, layoffs are a widely accepted way to cut costs at companies big and small, in every industry. They’re also a common aftermath of mergers and of decisions to outsource jobs, exit a business or change the mix of talent in the ranks.
Yet, despite the fact that layoffs are commonplace, “there’s an enormous gap between what managers know they should do and how they act on that knowledge”, says Robert Sutton, professor of management science and engineering, Stanford University.
Most managers hate giving the bad news, of course. They know what losing a job means to an employee and his or her family. But layoffs are a quick way to shore up the bottom line and that becomes a priority.
Because the task is an unpleasant one, the biggest mistake managers make is waiting until the last possible moment to inform those being cut. Then, once in the middle of the process, they become tongue-tied and fail to express any empathy or articulate what the company will provide in the way of severance and other benefits.
Many also don’t take the high road. They let themselves off the hook by telling themselves and others that those being laid off weren’t good at their jobs—the corporate version of blaming the victim.
Timing and straightforward communication are critical not only for those losing their jobs but for those employees who survive layoffs. When managers don’t treat terminated employees decently, those left behind conclude they aren’t valued, either—making them fearful and sometimes pushing them out the door, too. “The key to driving out fear during difficult times is to give people as much prediction, understanding, control and compassion as possible,” says Sutton.
When Ron Thomas, vice-president of organizational development at Martha Stewart Living Omnimedia, coached managers during two rounds of layoffs, he advised them on what to expect from themselves and from those getting the bad news. The company cut a total of about 100 employees when it closed the catalogue business in 2002 and then eliminated its television show in 2004. On both occasions, “I told managers they weren’t going to sleep the night before” they had to announce layoffs, he says.
He urged them to “try to envision that one day you may be on the other side of the table—so you should treat people the way you’d like to be treated in this situation.”
Thomas advised managers not to “sugar coat” the news. He told them to say, “We’re closing something down and restructuring—and unfortunately, your job is being eliminated.” They should then move quickly to discussing how the company plans to help with severance and other benefits, he says.
He also has arranged outsourcing help for the terminated employees. “We make sure people who are losing a job know someone will call them to start helping them within a day,” he says. He will often use his own network of contacts to help them land new jobs. When the catalogue business was closed, he called every catalogue company he could think of to inquire about job openings.
These efforts fostered loyalty among current and former employees and helped the company recruit new talent. When Martha Stewart Living launched a new television show, it hired back some employees who had been laid off in 2004. “If you handle a restructuring well, the word gets out that you’re a good place to work. If we post a job opening today, we'll get 1,500 resumes tomorrow,” says Thomas.
An equally big challenge for managers at companies contemplating layoffs is figuring out the actual benefits. Numerous studies by business professors and management consultants conclude that layoffs, while perhaps boosting the bottom line momentarily, rarely yield companies sustainable long-term savings.
Staff reductions cost companies valuable talent that frequently must be replaced at an even higher cost at a later date. They also hurt morale and productivity among survivors.
This is the case even at some of the most employee-friendly companies. A study of 3,000 Canadian workplaces between 1999 and 2001 that offered employees “high involvement work practices”, such as training, information, motivation and latitude, suffered productivity losses after layoffs. According to Christopher Zatzick and Roderick Iverson of Simon Fraser University, who conducted the study, survivors at these companies felt their “psychological contract” with bosses had been violated. The companies that continued people-friendly practices after layoffs, however, eventually recouped productivity.
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