How do I properly conduct lay-offs?

Traditionally, employers resort to layoffs during recessions to save money. Companies continue to cling to the idea that reducing staff will provide the best, fastest, or easiest solution to financial problems.

Eighty-five percent of respondents rated job loss as their top concern in Edelman’s 2022 Trust Barometer. Layoffs break trust by severing the connection between effort and reward. The premise of a layoff is that if it weren’t for the economic conditions facing the company, employees would keep their jobs as long as they perform them well.

One study found that being laid off ranked seventh among the most stressful life experiences — above divorce, a sudden and serious impairment of hearing or vision, or the death of a close friend. Experts advise that it takes, on average, two years to recover from the psychological trauma of losing a job.

This means that, as an employer, conducting layoffs correctly is of massive importance for both you and your employees. If there is ever a situation that may lead to an employee being laid off, it is important that employers are conscious of the following things:

Clear reasoning and a last resort

Numerous studies over the past 20 years correlate layoffs that are strategic and forward-looking with higher valuations and stock prices and those that are focused solely on cost cutting with lower ones. Examples of strategic reasons include exiting less profitable sectors, products or markets due to changing customer habits. Further, effective employers know that being transparent regarding the reasons for layoffs increases investor, customer and employee trust and engagement.

The same studies also demonstrate that most organisations that conduct layoffs do not see improved profitability, especially those that are highly reliant on innovation and growth. In general, investor response to layoffs can be less positive than employers expect. Effective employers know that they should pursue all possible alternatives before embarking on layoffs, including redesigning jobs and work models, moving some workers to contractor status, using more variable pay (such as bonuses) and offering more flexible benefits to create cost and operational flexibility.

Acting fairly and treating people with respect and dignity

Additional research shows that layoffs historically have had a disparate impact on women and underrepresented employees. Recent anecdotes in the news show stories of layoffs among employees on maternity and ill health leave, as well as those in vulnerable positions with visas.

Reasons cited as acceptable for determining who is laid off include factors such as employee performance, tenure, experience and skill set. Effective employers know that evaluating performance, skills and other factors is difficult and time-consuming, and that maintaining ongoing performance evaluation and review processes can position companies well for both ongoing and unanticipated events.

Effective employers know that their actions during layoffs impact both those who are laid off and those who stay. The absence of compassionate leadership during difficult times erodes loyalty among those who remain. Further, according to the Edelman Trust Index, customers watch closely and test alignment with their own values.

Effective employers understand that actions such as terminating employees on leave, firing employees over email, and withholding access to personal information or property from terminated employees is harmful in both the short and long term. Additionally, research carried out by WTW shows that organisations that are highly effective at leading and managing change during disruption consistently demonstrate year-over-year superior financial performance.

Know who you are laying off and take responsibility

Experienced employers also recognise the price of not spending enough time learning about who they are laying off and the implications of doing so. Effective employers spend the time and thought required to understand not only who they are laying off but also why and the potential impact. They conduct robust workforce planning exercises using data science to understand employee performance, skills, networks and collaboration patterns to safeguard against losing key talent and creating unintended consequences.

Effective employers take responsibility for layoffs and show appreciation for those impacted. They know that the once-standard practice of not apologising for layoffs has been turned on its head in today’s world of purpose and accountability. They demonstrate their empathy and compassion through all communications. They understand their audience, share the reasons for the layoffs, allow opportunity for employees to process the information and share their feelings, and provide support and resources.

Successfully managing workforce changes within today’s landscape ultimately requires evaluating your actions against the backdrop of trust. Companies will weather the storm of layoffs more successfully if employers can maintain trust with three groups who will determine success in the future: employees that are let go, employees that are retained, and employees who don’t yet work for the company.

Keeping trust at the centre of employers’ decision-making can lead to surprising, beat-the-odds success, and also offers employers a reminder: Your actions will have consequences that are more visible than they’ve been in the past and you will be judged as trustworthy — or not — based on them.