Why Layoffs May Lead to Lagging Performance and a Loss of Your Best Employees

Mike Kuppinger Care for people, Change, Leadership Leave a Comment

Could avoiding layoffs or staff reductions get your company through a downturn faster?

white-flagDo layoffs signal a white flag to your competitors, and a green flag to your best employees?

 

 

Anyone who has worked in corporate America for long knows this truth: Massive staff reductions, called layoffs, have become a fact of working life, reaching all cultures across the global. The most recent recession claimed 8.5 million US and more than 50 million victims worldwide.  Recent examples include: Alcatel-Lucent 10K in 2015, Siemens 15k in 2014 with 5k in Germany, and IBM cut employees in France, Italy, Netherlands, Belgium, and Norway.

University of Colorado research, Wayne F. Cascio, Ph.D., has found that the typical direct cost of layoffs will range from 150% to 250% of the employee’s annual salary. The Wall Street Journal reports something similar: an average direct layoff cost of $100k per employee, (WSJ 1/22/2009, p. B7).

Companies make the difficult decision to reduce staff size when they need to improve performance. And yet the results may not always measure up. “Studies have tracked the performance of downsizing firms verses non-downsizing firms for as long as nine years after a downsizing event,” said Cascio as he spoke to a gathering of academics at the Irish Academy of Management last fall. “The findings: As a group, the downsizers never outperform the non-downsizers.”

What is the real impact of staff reduction?

As a general manger responsible for operational impact, I began to look into the topic and found many studies that show layoffs  cause immediate negative impact to the remaining employees through reduced employee commitment, lower job satisfaction, and loss of trust in company leadership. Not good, especially when so much effort is placed on employee engagement. So can these softer factors be measured against the hard cost benefits? An empirical One study analyzed companies applying for Fortune’s “100 Best Employer’s to Work For” list, discovering that downsizing had greater than a 99.9% correlation to increased voluntary resignations over the next 12 months. More specifically, this study of 267 cases found that a 10% layoff will result in additional voluntary resignations of 15.5%, (Trevor & Nyberg, 2008). Yes, when a firm terminates 20 employees, an additional 31 employees will leave on their own over the next year.

In my experience, the employees who leave voluntarily are exactly the employees you do not want to lose: they are the top talent, your most marketable and best performing employees. Layoffs break a psychological contract with the remaining employees who suffer what is called survivor syndrome, contributing to unforeseen losses.

Cost control, including significant cost reductions are an important part of business. Responsible restructuring is built on the premise of full disclosure to employees every step of the way with the strategy of enlisting employees to help define actions at each stage of decline. (For more on this, I encourage you to explore Cascio’s research.)

The best employers have proven this is possible over the last 12 years, (2002 through 2014): 80% of Fortune’s ”100 Best” out-performed their competitors without layoffs. Companies who align the values of all stakeholders, not just stockholders, will collectively navigate through tough times and most likely, never raise the white flag in defeat signaling to their best staff that it is time to leave!

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Mike Kuppinger recently retired as a General Manager for Environmental Systems Design, and is now working with corporate leaders to find people-centered approaches to engineering and organizational leadership. He is a student in Benedictine University’s Ph.D. Program in Values-Driven Leadership.

Image used under Creative Commons licensing.

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